A Look at Becton, Dickinson and Company’s Valuation

Becton, Dickinson and Company is one of the five biggest medical device companies in the United States.

Sarah Collins - Author

Dec. 24 2015, Updated 1:04 p.m. ET



Becton, Dickinson and Company (BDX), or BD, is one of the five biggest medical device companies in the United States and the biggest player in the needles and syringes market. New product innovations and inorganic growth strategies such as mergers and acquisitions drive the company’s growth. BD’s valuation soared in 2015 with the acquisition of CareFusion, and it has maintained stability amid strong product portfolios, increasing revenues and earnings, and strong investor sentiments.

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The above graph shows the forward price-to-earnings ratios of leading medical device industry players BD (BDX), Medtronic (MDT), Boston Scientific (BSX), and Stryker (SYK). The forward price-to-earnings ratio is calculated by dividing a company’s stock price by its earnings estimate for the next 12 months.

BD’s fundamentals

BD’s acquisition of CareFusion in 2015 made it the largest player in medication management and provided the company with opportunities to expand its product portfolio and market reach. The acquisition is expected to bring cost synergies of more than $250 million by the end of fiscal 2018. Cash flow generated will be used to accelerate product innovation, fund further acquisitions, and return shareholder value through dividends and share repurchases.

Leverage acquired to fund the CareFusion acquisition, the strengthening of the dollar, and changing business models in the medical device industry continue to put pressure on BD’s margins. However, the company is expected to generate long-term value and grow at a steady pace.

Value to shareholders

BD has consistently paid dividends to its shareholders for 43 consecutive years and has outpaced the dividend growth rate of a number of other major industry players, such as Johnson & Johnson. On November 25, 2015, BD announced a quarterly dividend of $0.66, an increase of approximately 10% from the $0.60 per share of the previous quarter. Moreover, the company’s low payout ratio leaves room for dividend growth in the future. In addition to dividend payments, BD also returns cash to shareholders through share buybacks.

Investors can gain diversified exposure to major performers in the medical device industry by investing in the iShares US Medical Devices ETF (IHI). BD, Boston Scientific, Stryker, and Medtronic make up approximately 5.8%, 4.5%, 5.4%, and 15.4% of IHI’s total holdings.


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