BD’s earnings estimates
Wall Street has projected an increase in Becton, Dickinson and Company’s (BDX) net profit margins, which are expected to come in at $397.6 million, representing a YoY (year-over-year) increase of around 13.1% in 1Q16.
In 2015, Becton, Dickinson and Company, or BD, made a significant number of strategic acquisitions and collaborations with the aim of expanding its presence across product segments and regions. The most prominent of those deals was the acquisition of CareFusion. The successfully executed integration of the two companies, to date, has generated significant cost and revenue synergies and is expected to achieve a cost synergy target of approximately $350 billion by 2018. Though the future growth potential of this acquisition is undebatable, the deal has put pressure on the balance sheet due to the debt undertaken for the acquisition.
Also, the company’s SG&A (selling, general, and administrative expenses) have been high over the past few years and have not translated into an equivalent increase in sales. Therefore, earnings growth is expected to be weighed down in the short term until we see significant growth from the integration synergies and premium price benefits from the sale of CareFusion’s legacy products.
Consensus estimates versus actual performance trends
Wall Street has provided a consensus EPS (earnings per share) estimate of $1.85 for BD in 1Q16, and the company has provided adjusted EPS guidance of $1.80–$1.85.
According to the above graph, BD has beaten consensus EPS estimates consistently over the past few quarters. Analysts expect BD to report adjusted EPS growth of 26% YoY in 1Q16 and 30.2% in 2Q16. The company’s 1Q16 earnings are expected to be impacted unfavorably by currency headwinds and then see improvement over the later periods of 2016.
For the same quarter, major competitors Abbott (ABT), Thermo Fisher Scientific (TMO), and Johnson & Johnson (JNJ) are expected to register higher net profit margins, of 15.3%, 17.6%, and 22.2%, respectively.
The Health Care Select Sector SPDR ETF (XLV) has around 13% exposure to the medical device industry. Becton, Dickinson and Company accounts for around 1.2% of the total holdings of XLV.