Becton Dickinson and Co. Quarterly Valuation – July 2014 $BDX

200px-Becton_Dickinson-ColorLogo.svgBenjamin 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 5 Undervalued Companies for the Defensive Investor.  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 specific look at how Becton Dickinson and Co. (BDX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Becton Dickinson and Co is a global medical technology company engaged in the development, manufacture and sale of medical devices, instrument systems and reagents used by healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. The Company’s operations consist of three business segments: BD Medical, BD Diagnostics and BD Biosciences. BD Medical produces a range of medical devices, which are used in a range of healthcare settings. BD Biosciences produces research and clinical tools that facilitate the study of cells, and the components of cells. BD Diagnostics provides products for the safe collection and transport of diagnostics specimens. On March 11, 2013, the Company acquired a 100% interest in Cato Software Solutions (Cato).
BDX Chart

BDX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $118.61
MG Value $82.36
MG Opinion Overvalued
Value Based on 3% Growth $79.23
Value Based on 0% Growth $46.44
Market Implied Growth Rate 6.60%
Net Current Asset Value (NCAV) -$5.12
PEmg 21.71
Current Ratio 2.95
PB Ratio 4.31

Balance Sheet – 3/31/2014

Current Assets $5,946,000,000
Current Liabilities $2,016,000,000
Total Debt $3,764,000,000
Total Assets $12,250,000,000
Intangible Assets $2,309,000,000
Total Liabilities $6,935,000,000
Outstanding Shares 193,200,000

Earnings Per Share

2014 (estimate) $6.26
2013 $4.67
2012 $5.30
2011 $5.59
2010 $4.90
2009 $4.92
2008 $4.46
2007 $3.36
2006 $2.95
2005 $2.66
2004 $2.21

Earnings Per Share – ModernGraham

2014 (estimate) $5.46
2013 $5.07
2012 $5.19
2011 $4.97
2010 $4.48
2009 $4.07

Dividend History

BDX Dividend Chart

BDX Dividend data by YCharts


Becton Dickinson and Co. qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor has concerns with the high PEmg and PB ratios.  Meanwhile the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities including a review of ModernGraham’s valuation of Covidien (COV).  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $4.48 in 2010 to an estimated $5.46 for 2014. This level of demonstrated growth does not support the market’s implied estimate of 6.6% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Becton Dickinson and Co. (BDX) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Becton Dickinson and Co. (BDX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Becton Dickinson and Co. (BDX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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