Becton, Dickinson and Company Fundamental Analysis
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Becton, Dickinson and Company
Last Updated: 30 Nov 2022
NYSE: BDX
GICS Sector: Healthcare
Sub-Industry: Medical Instruments & Supplies
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Table of Contents
Management
CEO: Thomas E. Polen, Jr.
Tenure: 2.8 years
Becton, Dickinson and Company's management team has an average tenure of 1.4 years. It is considered inexperienced.
Source of Revenue
Becton, Dickinson and Company is a global medical technology company engaged in the development, manufacture and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry and the general public.
Becton, Dickinson and Company provides customers solutions that are focused on improving medication management and patient safety; supporting infection prevention practices; equipping surgical and interventional procedures; improving drug delivery; aiding anaesthesiology care; enhancing the diagnosis of infectious diseases and cancers; and advancing cellular research and applications.
The company has three reportable business segments worldwide: BD Medical, BD Life Sciences and BD Interventional.
BD Medical
BD Medical produces a broad array of medical technologies and devices that are used to help improve healthcare delivery in a wide range of settings.
The primary customers served by BD Medical are hospitals and clinics; physicians’ office practices; consumers and retail pharmacies; governmental and non-profit public health agencies; pharmaceutical companies; and healthcare workers. BD Medical consists of the following organisational units:
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Medication Delivery Solutions - Principal product lines include peripheral intravenous ("IV") catheters (conventional, safety); enteral syringes; and sharps disposal systems.
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Medication Management Solutions - Principal product lines include IV medication safety and infusion therapy delivery systems, including infusion pumps, dedicated disposables, and IV fluids.
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Pharmaceutical Systems - Principal product lines include prefillable drug delivery systems - prefillable syringes, safety, shielding and self-injection systems.
BD Life Sciences
BD Life Sciences provides products for the safe collection and transport of diagnostics specimens, and instruments and reagent systems to detect a broad range of infectious diseases, healthcare-associated infections and cancers. In addition, BD Life Sciences produces research and clinical tools that facilitate the study of cells, and the components of cells, to gain a better understanding of normal and disease processes.
The primary customers served by BD Life Sciences are hospitals, laboratories and clinics; blood banks; healthcare workers; public health agencies; physicians’ office practices; retail pharmacies; academic and government institutions; and pharmaceutical and biotechnology companies. BD Life Sciences consists of the following organisational units:
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Integrated Diagnostic Solutions - Principal product lines include integrated systems for specimen collection; safety-engineered blood collection products and systems.
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Biosciences - Principal product lines include fluorescence-activated cell sorters and analyzers.
BD Interventional
BD Interventional provides vascular, urology, oncology and surgical speciality products that are intended, except for the V. Mueller™ surgical and laparoscopic instrumentation products, to be used once and then discarded or are either temporarily or permanently implanted.
The primary customers served by BD Interventional are hospitals, individual healthcare professionals, extended care facilities, alternate site facilities, and patients via the Homecare business. BD Interventional consists of the following organisational units:
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Surgery - Principal product lines include ChloraPrep™ surgical infection prevention products and V. Mueller™ surgical and laparoscopic instrumentation products.
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Peripheral Intervention - Principal product lines include percutaneous transluminal angioplasty (“PTA”) balloon catheters and atherectomy and thrombectomy systems.
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Urology and Critical Care - Principal product lines include urine management & measurement devices, and faecal management devices.
Becton, Dickinson and Company Reportable Segment Revenue
Becton, Dickinson and Company Reportable Revenue by Geography
Becton, Dickinson and Company Economic Moat
Becton, Dickinson and Company Economic Moat
Economic Moat: Narrow
There are many ways to identify Becton, Dickinson and Company’s economic moat, but I focus on the above 5 types. The rating is purely subjective and based on my in-depth understanding and analysis of Becton, Dickinson and Company. Please check my summary to understand more about the economic moat.
Performance Checklist
Is Becton, Dickinson and Company’s revenue growing YoY for the past 5 years consistently? Inconsistent.
Is the net income growing YoY for the past 5 years consistently? Inconsistent.
Is the cash flow from operating activities growing YoY for the past 5 years consistently? Inconsistent.
Is the free cash flow positive for the past 5 years? Yes.
Is the gross margin % consistent/ growing for the past 5 years? Yes.
Is the EPS growing for the past 5 years? Inconsistent.
Becton, Dickinson and Company Revenue, Net Income, Operating Cash Flow, and FCF (USD Million)
Is the free cash flow per share growing for the past 5 years? Inconsistent.
Becton, Dickinson and Company FCF per Share
Management Effectiveness
Is Becton, Dickinson and Company’s ROE consistently at 12%-15% YoY for the past 5 years? No.
Becton, Dickinson and Company Return on Equity
Is the ROIC consistently at 12%-15% YoY for the past 5 years? No.
Becton, Dickinson and Company Return on Invested Capital vs Weighted Average Cost of Capital
The trendline for the number of shares outstanding is increasing, which is something that an investor would not be pleased to see.
Becton, Dickinson and Company Shares Outstanding (Million Shares)
Becton, Dickinson and Company Financial Health
Becton, Dickinson and Company Financial Health (USD Million)
Current Ratio: 1.04 (barely pass my requirement of >1.0)
Debt-to-EBITA: 3.48 (fail my requirement of <3.0)
Interest Coverage: 6.69 (pass my requirement of >3.0)
Debt Servicing Ratio: 15.11% (pass my requirement of <30.0%)
Dividend
Current Dividend yield: 1.48%
Have the dividend payments been stable for the past 5 years? Yes.
Have the dividend payments been growing for the past 5 years? Yes.
Becton, Dickinson and Company’s dividend payments are reasonably covered by its earnings and its cash flows.
Becton, Dickinson and Company Valuation
Estimated intrinsic value: $191.00
Value is calculated using discounted cash flow method (taking into account their cash and debt) and scenario planning.
Average free cash flow used: $2,600M
Projected growth rate: 8% - 9%
Beta: 0.61
Discount rate: 5.1%
Date of calculation: 30 Nov 2022
Becton, Dickinson and Company Price-Earnings Ratio vs its peers
Becton, Dickinson and Company Historical Price-Earnings Ratio
Additional Resources
I recommend reading The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit as it greatly helps in my stock analysis. If you want a complete collection of recommended books, please visit here.
My Top Concern
Becton, Dickinson and Company is subject to risks associated with public health crises, such as pandemics and epidemics, including the COVID-19 pandemic. Such crises may result in significant reductions in the demand for certain products due to reductions in elective and non-essential procedures, lower utilisation of routine testing and related specimen collection, reduced capital spending by customers, decreases in hospital and clinical occupancy and healthcare system staffing shortages. The nature and extent of future impacts are highly uncertain and unpredictable.
Also, the company has experienced significant challenges in its global supply chain, including shortages in supply, or disruptions or delays in shipments, and related price increases.
Changes in reimbursement practices of third-party payers or other cost containment measures could affect the demand for Becton, Dickinson and Company products and the prices at which they are sold.
The company sales depend, in part, on the extent to which healthcare providers and facilities are reimbursed by government authorities (including Medicare, Medicaid and comparable foreign programs) and private insurers for the costs of its products. Reforms to reimbursement systems in the U.S. or abroad, changes in coverage or reimbursement rates by private payers, or adverse decisions relating to the products by administrators of these systems could significantly impact Becton, Dickinson and Company’s business and profitability.
Summary for Becton, Dickinson and Company
Becton, Dickinson and Company’s moat stems from its manufacturing scale, mainly from its BD Medical segment, which contributes close to half of the company’s revenue. The scale creates cost advantages for the company which makes price competition difficult for new entrants. However, the company is not entirely a price-setter as the product is very commodity-like.
Becton, Dickinson and Company’s other business segments possess elements of high switching costs due to the products they sold. For example, intravenous infusion pumps, respirators, and ventilators. Competitors, especially the smaller size ones, find it challenging to compete because of Becton, Dickinson and Company’s scale. Moreover, hospitals rarely switch vendors once they are familiar with a particular brand of equipment. This is because of the retraining costs and product and process familiarity.
Although Becton, Dickinson and Company has attributes such as cost advantages and high switching costs, I will only assign a narrow economic moat rating for the company due to the lack of other areas including intangible assets and network effect.
Becton, Dickinson and Company’s performance is only inconsistent due to the recent events. Zooming out on a 10 years period, its revenue and operating cash flows are on an increasing trend. Its gross margin and net margin are constantly above the industry average for the past 5 years.
However, both Becton, Dickinson and Company’s ROE and ROIC did not meet my minimum requirement of 12% consistently over the past 5 years. Its current ROE of 7.2% is below the industry average. Its ROIC is below the industry average as well and it is just a percentage higher than its WACC. These ratios suggest that the company does not allocate its capital efficiently.
Becton, Dickinson and Company’s balance sheet needs to be monitored. Its current ratio of 1.04 suggests poor liquidity. Even though its short-term assets exceed its short-term liabilities, it is still not sufficient to cover its long-term liabilities. Both Becton, Dickinson and Company’s debt-to-equity and debt-to-EBITA ratios are considered high. The only relief is that the company’s interest coverage and debt servicing ratio are considered satisfactory.
With a narrow economic moat and mediocre results across its performance, capital allocation and financial health, I will assign a 50% margin of safety. So, with an estimated intrinsic value of $191.00, I will only purchase the stock if the price is trading around the $96 range.
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