Becton, Dickinson BDX reported fourth-quarter results that were surprisingly strong. We're leaving our fair value estimate intact, as the impact of BD's performance in the quarter was not significant enough to move the needle on our valuation. However, our positive take on the firm's prospects in 2010 appears to be validated by management's forecast. We believe the company should be able to reach our 6.2% revenue growth target and $5.15 earnings per share forecast (which is slightly above BD's internal earnings guidance) as the resilience in the medical segment, growth opportunities in diagnostics, and pent-up demand in biosciences should provide a strong tail wind. With the exception of the biosciences segment--which is still struggling to generate growth because of restraint in research lab capital spending in anticipation of the National Institutes of Health's stimulus funding--the segments blew away our estimates. BD's medical business posted 13% currency-neutral growth in the quarter, representing expansion not seen in several years. While hospital spending appears to have stabilized (as noted by BD's rivals and our research), the firm's 7.6% growth in domestic medical surgical business, the highest level of growth in years, indicates that hospitals could be replenishing supplies that were drained by the earlier destocking. Currency-neutral 11% growth in overseas medical surgical markets also bodes well for the company's prospects in 2010. In addition to the favorable comparables BD will see in the first quarter, currency-related constraints in Eastern Europe are subsiding, and the company's safety sharps line could once again return to the 15%-20% growth it had seen in the past. BD's revenue outlook for 2010 largely confirms our forecast, although we note that the company is being very cautious in its projections for biosciences; stimulus funding and pent-up demand should re-energize academic and private research end markets, and this business could return to 8% and higher growth earlier than expected.The company's forecast for earnings expansion was also fairly conservative, in our view. However, two things are working against greater earnings expansion: BD's investment in enterprise resource planning software and increasing pension costs. Nonetheless, we think BD should at the very least reach the upper boundary of its predicted earnings per share growth range, and could possibly exceed it altogether if it sees stronger-than-expected growth in biosciences.
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Analyst Notes
07-30-09 | 5:11PM Becton Gets a Boost from Hedging
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