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Valuation Multiples: Becton, Dickinson and Company versus Peers

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Jan. 27 2016, Updated 4:07 p.m. ET

Valuation multiples

After the release of its 4Q15 earnings results on November 4, 2015, Becton, Dickinson and Company (BDX), or BD, traded at forward PE (price-to-earnings) multiples in the range of 16.6x–17.2x. Currently, BD is trading at valuation multiples comparable to those of peers Boston Scientific (BSX), Stryker (SYK), and Medtronic (MDT).

BD’s valuation soared in 2015 with the acquisition of CareFusion. It has been stable since then amid a successful integration that yielded synergies exceeding expectations, a portfolio of unrivalled breadth and depth, operations across new markets, consistent revenues and earnings growth, and strong investor sentiments.

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BD’s fundamentals

In addition to being one of the five biggest medical device companies in the United States, BD is the largest player in the needles and syringes market. With the acquisition of CareFusion, BD has also positioned itself as the global leader in medication management and safety-engineered products. More than 50% of the company’s sales are generated from international markets, and its emerging markets exposure is around 25%. The acquisition of CareFusion in 2015 is expected to bring cost synergies of more than $350 million by 2018. The cash flow generated will be used to fund further acquisitions, accelerate product innovation, and distribute dividends and repurchase shares to return shareholder value.

Though the growth potential and strong market position of the company is undisputable, factors such as currency headwinds, changing business models in the medical technology industry, disruptions in the healthcare industry, and leverage acquired by BD to fund the CareFusion acquisition continue to put pressure on the profit margins of the company.

Value to shareholders

BD has consistently returned value to its shareholders over the years through dividend distribution and share repurchases. The company has consistently paid dividends for 44 consecutive years and is positioned as a dividend aristocrat, meaning that it is a constituent of the S&P 500 and has had consistently increasing dividend payouts for 25 consecutive years. BD has witnessed a consistent dividend increase of around 10% over the past decade, with the recent quarterly dividend of November 25, 2015, being $0.66, an increase of approximately 10% from the $0.60 per share of the previous quarter. Moreover, the company has a low payout ratio, which represents the potential for further dividend growth.

The SPDR S&P Dividend ETF (SDY) tracks the S&P High Yield Dividend Aristocrats Index. BD accounts for around 0.82% of SDY’s total holdings.

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