Medical Stocks

Becton Dickinson and Co Valuation – January 2017 $BDX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Becton Dickinson and Co (BDX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Becton, Dickinson and Company (BD) is a global medical technology company engaged in the development, manufacture and sale of a range of medical supplies, devices, laboratory equipment and diagnostic products. The Company operates through two segments: BD Medical and BD Life Sciences. The BD Medical segment produces an array of medical technologies and devices that are used to help improve healthcare delivery in a range of settings. BD Medical consists of various business units, including diabetes care, medication and procedural solutions, medication management solutions and pharmaceutical systems. The BD Life Sciences segment provides products for the safe collection and transport of diagnostics specimens, and instruments and reagent systems to detect a range of infectious diseases, healthcare-associated infections and cancers. The Company’s BD Life Sciences segment consists of various business units, including preanalytical systems, diagnostic systems and biosciences.

 

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BDX – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $36,470,771,094 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.45 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -10.71% Fail
6. Moderate PEmg Ratio PEmg < 20 34.04 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.78 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.45 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.36 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $4.93
MG Growth Estimate -2.34%
MG Value $18.86
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $71.51
MG Value based on 0% Growth $41.92
Market Implied Growth Rate 12.77%
Current Price $167.89
% of Intrinsic Value 890.18%

Becton Dickinson and Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $5.84 in 2013 to an estimated $4.93 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.77% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Becton Dickinson and Co revealed the company was trading above its Graham Number of $66.55. The company pays a dividend of $2.64 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 34.04, which was above the industry average of 32.29. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-53.26.

Becton Dickinson and Co scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$53.26
Graham Number $66.55
PEmg 34.04
Current Ratio 1.45
PB Ratio 4.78
Current Dividend $2.64
Dividend Yield 1.57%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $6,367,000,000
Total Current Liabilities $4,400,000,000
Long-Term Debt $10,550,000,000
Total Assets $25,586,000,000
Intangible Assets $13,770,000,000
Total Liabilities $17,953,000,000
Shares Outstanding (Diluted Average) 217,536,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.50
Sep2016 $4.49
Sep2015 $3.35
Sep2014 $5.99
Sep2013 $6.49
Sep2012 $5.59
Sep2011 $5.62
Sep2010 $5.49
Sep2009 $4.99
Sep2008 $4.46
Sep2007 $3.49
Sep2006 $2.93
Sep2005 $2.77
Sep2004 $1.77
Sep2003 $2.07
Sep2002 $1.79
Sep2001 $1.49
Sep2000 $1.49
Sep1999 $1.04
Sep1998 $0.90
Sep1997 $1.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.93
Sep2016 $4.83
Sep2015 $5.13
Sep2014 $5.96
Sep2013 $5.84
Sep2012 $5.42
Sep2011 $5.16
Sep2010 $4.71
Sep2009 $4.13
Sep2008 $3.49
Sep2007 $2.87
Sep2006 $2.46
Sep2005 $2.15
Sep2004 $1.80
Sep2003 $1.73
Sep2002 $1.49
Sep2001 $1.30

Recommended Reading:

Other ModernGraham posts about the company

Becton Dickinson & Company Analysis – August 2015 Update $BDX
30 Companies in the Spotlight This Week – 5/23/15
Becton Dickinson and Company Quarterly Valuation – May 2015 $BDX
34 Companies in the Spotlight This Week – 2/7/15
Becton, Dickinson and Company Quarterly Valuation – February 2015 $BDX

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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