Is Becton Dickinson Stock a Buy?

Medical device giant Becton Dickinson (NYSE:BDX) has been a poor source of returns over the last year. Shares of the company have fallen by 5.7% in the last 12 months, causing shareholders to miss out on the gains produced by the broader stock market.

If a declining share price is a double-edged sword, the other side is BDX shares may now be undervalued so is it time to buy?

What Does Becton Dickinson Do?

With a market capitalization of over $68 billion, Becton Dickinson is among the world’s largest medical device companies.

The company supplies a wide range of everyday medical instruments, including syringes, trays, catheters, IV systems and laboratory equipment.

BDX also manufactures and distributes advanced diagnostic and drug delivery materials, testing devices and medical management services, making the company an integral part of the broader healthcare ecosystem.

Is Becton Dickinson Still Growing?

Despite a series of ups and downs over many years, Becton Dickinson hasn’t managed to increase its earnings much in the last decade.

For the full year of 2013, the company reported earnings of $4.73 per share. The trailing 12-month total as of the end of Q3 was $4.94, barely above the decade-ago level. At first glance, this lack of sustained earnings growth could present a significant issue for investors.

Counterbalancing this earnings stagnation, though, is BDX’s strong revenue growth. 10 years ago, the company’s full-year revenues amounted to about $8.2 billion. For the most recently reported twelve month period, that number has more than doubled to $19.4 billion. Though earnings haven’t kept pace, it’s clear that the company is still generating respectable sales growth.

The question now is whether Becton Dickinson can improve its margins so that earnings can begin to catch up to its much-improved revenues?

For FY 2023, earnings fell while revenues advanced modestly. Revenue rose by 4.5% on a currency-neutral basis, and that growth rate is expected to rise to 5.75% in the coming year.

Full-year GAAP earnings totaled $5.10 per share, but profitability did slow down significantly late in the year. For fiscal Q4, the company reported earnings of $0.53 per share, over 40% lower than the earnings in the year-ago period. With fiscal Q1 earnings expected soon, analysts once again project BDX to report declining earnings.

It’s worth noting that much of BDX’s capital is being reinvested into innovation in accordance with a long-term growth plan that is expected to run through 2025.

For FY2023, the company invested $1.2 billion into research and development, roughly paralleling the amount it spent in 2022. These research initiatives, which include new testing and device development, are likely to drive long-term revenue growth and position the company for higher eventual earnings.

Over the next five years, analysts see Becton Dickinson’s earnings rising by as much as 8.4% annually. If the company can achieve this growth rate, it’s likely that its shares will appreciate considerably, especially in light of the lackluster earnings increases of recent years.

Will Becton Dickinson’s Performance Justify its Price?

With a forward price-to-earnings ratio of 18.4, BDX trades at a significantly lower premium than the broader S&P 500.

This favorable ratio, however, is somewhat offset by less attractive price-to-earnings-growth and price-to-sales ratios of 1.9 and 3.6, respectively. Taking a look at the full valuation picture, BDX shares appear to be more or less fairly valued.

Examining analyst price targets and institutional activity, it becomes clear that Wall Street views BDX quite favorably. Even with earnings currently stagnant, buying activity has outweighed selling over the last 12 months, and more than 86% of the company is owned by institutional investors. The median target price of $277.50, meanwhile, would imply an upside of 16.7%.

BDX’s Rock-solid Dividend

One area where Becton Dickinson certainly does shine is in its ability to deliver consistent, reliable dividends.

The company has been raising its dividend for 52 consecutive years, bringing it to a current yield of 1.6% with an annualized payout of $3.80 per share. Over the last 10 years, management has raised this payout at an average pace of 6.4% each year.

While BDX does offer an extremely stable dividend, the company will have to improve its earnings in order to keep its growth streak going. The current payout ratio is 76.6%, toward the upper end of the safe range for most companies.

Weighing the Risks of Becton Dickinson Shares

The most obvious risk associated with BDX at the moment is the possibility that the company won’t be able to raise its earnings fast enough to drive appreciable increases in share price.

Considering recent history, this is far from impossible. The revenue growth of the last 10 years, though, has put the company in a decent position to increase its net income if it can pare back expenses.

Becton Dickinson also carries a debt-to-equity ratio of 0.57x. While this wouldn’t be bad at all for a faster-growing company, it is slightly high for a mature firm that’s currently achieving single-digit growth rates.

The debt isn’t a serious problem right now, especially since the company has more than enough cash to cover its current expenses. If long-term debt continues to increase beyond its current level, though, investors may want to take a second look at the company’s obligations.

Is Becton Dickinson Stock a Buy Now?

Risks notwithstanding, Becton Dickinson’s stability, position within an economically reliable industry and growing revenues all make it a fairly attractive company for conservative investors.

Successful R&D efforts have helped the company increase its sales, and management has the experience necessary to balance the needs of the product pipeline with the requirement to increase earnings for shareholders.

Given these factors and the extremely high rate of institutional ownership, there is a great deal to like about Becton Dickinson as both a business and an investment.

Overall, BDX appears to be a moderate buy for investors seeking a combination of decent income and some upside potential. Investors should, however, understand that BDX is a relatively low-risk, low-reward type of stock.

Shareholders in this medical device company are unlikely to see enormous returns, but the low volatility, very strong dividend history and potential for sustainable earnings growth may appeal to risk-averse investors who are comfortable accepting modest returns.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.