New Jersey-based Becton, Dickinson generates $12 billion in annual revenue, and operates in 50 countries with more than 40,000 employees. It manufactures medical supplies, diagnostic equipment and life science instruments. Its CareFusion unit specializes in infusion therapy and medication management.
The company operates in two main divisions: Life Sciences and Medical. Life Sciences manufactures all types of blood collection devices, microbiology assays and flow cytometry equipment. The Medical division makes everything from hypodermic syringes to insulin syringes, infection prevention equipment and specialized cannulas for various surgical procedures.
At its November analyst meeting, management stressed the company is investing for growth. On that front, it has made tremendous progress since 2012. That year, organic revenue grew just 3.2% and earnings just 4.7%. But by late 2016, Becton, Dickinson was headed for organic revenue growth of 4.3% and earnings growth of 29%.
Management believes the company can sustain revenue growth of 5% from fiscal year 2017 through fiscal 2019 (fiscal years end in September). During that time, earnings are expected to grow 10%, driven by 100 basis points of operating margin expansion per year. About two-thirds of growth is expected to come from developed markets, and one-third from emerging markets.
By improving operations, operating cash flow should rise from $7 billion during the 2012-2015 timeframe to $11 billion during 2016-2019.
On Feb. 2, Becton, Dickinson reported December-quarter earnings of $2.33 per share, $0.21 better than the consensus estimate. Revenue fell 2.1%, year to year, to $2.92 billion, reflecting the sale of the respiratory solutions business. Adjusted for the sale, organic revenue jumped 6.1%.
Adjusted operating margin was 23.8%, up 260 basis points year over year.
Management trimmed its previous fiscal-year EPS guidance by $0.10 due to foreign currency headwinds. During the quarter, the company was only able to offset about half of the negative effects of the strong U.S. dollar.
Analysts are looking for fiscal 2017 revenue of $12 billion and EPS of $9.43. Next year, revenue is expected to grow 5% to $12.6 billion and EPS should be up 10%.
As for valuation, the shares are trading at 19.5 times this year's EPS estimate and almost 18 times next year's. Historically, BDX trades between 18 and 20 times estimates, so the stock appears fairly valued.
Look for BDX to trade in line with the market going forward.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.