Dear Mr. Berko: We bought 200 shares of Becton Dickinson in 2008 at $63. My wife wants me to sell Becton and buy Apple. Please give me your opinion. -- C.F., Fort Walton Beach, Fla.
Dear C.F.: If your wife was your broker, I’d be comfortable telling you that your broker’s wacko! I wouldn’t take a bite of the Apple at this time.
In 1897, Maxell Becton and Fairleigh Dickinson met in an East Texas railroad station. They discovered each was a traveling salesman, both were from eastern North Carolina and they shared the same birthdate -- though Fairleigh was two years older. Shortly after meeting they founded Becton, Dickinson and Co. (BDX-$245), and their first sale was a Luer all-glass syringe for $2.50. In 1899, BDX got its first patent and soon became the largest vender of thermometers, hypodermic needles and syringes in the United States. In 1917, BDX introduced the ubiquitous ACE bandage and recorded its first million dollars in revenue.
The 2015 acquisition of CareFusion, a $4 billion revenue maker of medical supplies, and the 2017 purchase of $4.6 billion revenue C.R. Bard (vascular urology and oncology products) should enable Becton Dickinson to generate steady 6% to 8% organic growth. Today, BDX is a $17 billion revenue company with 76,000 employees -- in my opinion, too many chefs to manufacture and market BDX’s medical supplies, devices and diagnostic systems.
BDX’s business comprises three segments: MEDICAL SYSTEMS: It's the world’s No. 1 producer of hypodermic needles, syringes, insulin delivery systems, I.V. catheters and refillable drug delivery systems; BIOSCIENCES, which includes cellular analysis systems, infectious disease diagnostic kits, tests and automated blood culturing systems; and PREANALYTICAL SOLUTIONS for the collection and management of specimens. With the CareFusion and Bard acquisitions, BDX has a pipeline with the potential to expand the overall size of its marketing and become an even more important product and solutions vendor.
Numerous product launches are expected this year, especially interventional products. The LUTONIX drug-coated balloon for below-the-knee arterial treatment and the WAVELINE-Q for endovascular fistula systems are recent examples now headed to market. And there’s much more coming.
BDX has 275 million shares outstanding. It trades at a comfortable 21 times earnings that impresses Argus, UBS, Standard & Poor’s, Reuters, Market Edge, Merrill Lynch, Citigroup and Morgan Stanley, each of whom has a buy recommendation. That modest P/E also impresses Vanguard, Wellington, Northern Trust and Blackrock, who together own over 100 million shares.
I’d prefer that BDX split, which would make it easier to buy a few hundred shares. However, 14 out of 15 consecutive years of revenue growth ($5 billion to $17 billion) from 2003 to 2019 is not unimpressive. Supercalifragilistic earnings growth with 13 out of 15 years of higher earnings ($2.16 to $12.10) keeps shareholders happy, though in the last two years, officers and directors never bought a single share and sold nearly 600,000 shares. That concerns me.
Still, the yearly dividend has demonstrated 16 years of consecutive growth from $0.40 a share to $3.08 this year. And long-term shareholders like you should be as happy as hogs on ice. Operating margins improved enormously to 39% and are getting fatter, and net profit margins have established a record high of 20%. In the past 15 years, book value has improved yearly from $11.01 to $80.45 as cash flow has boomed in 14 of the last 15 years from $3.63 to $60.28 last year. These are impressively attractive metrics.
Many analysts expect BDX has the mojo to grow earnings 10% this year to $12.15, and out to 2025 those earnings could come to $17.40. BDX shares could trade at 22 times earnings and reach $382. BDX has plenty of growing potential, while Apple has plenty of growing pains.
(Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.)