Over the past decade, shares of medical-technology provider Becton, Dickinson (BDX) have turned in an attractive performance, particularly in comparison to the sluggish S&P 500.
Since Becton recently released fiscal first-quarter results marred by a slight revenue shortfall, however, some investors have decided it was time to jump off.
Big mistake. There’s little reason to think Becton shares will end their run as stalwart long-term performers. YCharts Pro, which had been listing the stock as undervalued prior to the latest drop-off, rates it an even bigger bargain now.
Let’s be clear: this isn’t a fast-lane play on a hot new trend. Becton is the nation’s leading maker of medical needles and syringes, selling billions of such “sharps” to hospitals, clinics, pharmacies and other medical users. Growth of these widely used but glamour-free products is pretty limited in the mature U.S. market.
In the past couple years, as tapped-out Americans have cut back on doctor visits and elective surgeries, demand for Becton’s normally recession-resistant products eased slightly. That’s one reason the company’s shares haven’t been fetching their historically plump multiple.
Also, because Becton gets about 55 percent of total revenues from outside the U.S., the company’s earnings are subject to near-term currency swings. (That’s why the stock came under pressure last summer, during the worst days of the Euro freak-out.)
But still, this is a company that makes a non-discretionary product, where business gets better when people get sicker. A year ago, for example, as an outsize wave of influenza swept through schools and offices, flu shots were the order of the day, and all those injections gave the needle-maker’s margins a nice booster shot.
Despite transient ups and downs, (some of which combined to crimp the latest quarter), Becton’s earnings and margins remain solid over time. Over the long haul, Becton sales just keep rising. YCharts has showcased Becton’s stock before.
Dividend yield is … quite reasonable.
And Becton’s share-repurchase effort is impressive.
That spike in the December quarter isn’t the start of a trend, execs caution: Becton has a new $1.5 billion buyback authorization and it used more than half in the quarter just ended; the remainder will be spread over the rest of the year.
We’d be a bit more impressed if it didn’t appear that the company is using borrowed money to pay for those shares. All we know is, Becton borrowed one billion dollars in November and, among the boilerplate potential uses for the ten and thirty-year debt it issued, offering documents listed share repurchases.
That issuance affected its debt position pretty significantly.
Still, Becton’s cash position looks okay, and free cash generation remains very solid. Becton’s balance sheet is strong.
Sales should see a bump from the recovery now underway among stateside healthcare providers. It’s awkward but true that a global increase in diabetes cases, related to adoption of unhealthy western diet, is helping Becton’s offshore needle sales.
Organic sales growth this year will be around 6 percent on a currency-neutral basis, execs say. That rate’s been up and down of late:
Becton uses so much plastic producing its disposable injection products that margins can suffer when rising oil prices boost plastic resin costs. That’s a worry.
But here’s the bottom line: With a commanding global presence as the maker of a mundane but essential healthcare product, Becton is worth sticking with.
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