Becton, Dickinson and Company (BDX), a global medical technology company, reported quarterly revenues of $2.05 billion for the its fiscal quarter ended June 30, 2013. This represents growth of 3.6% from the same quarter of the previous year, or 5.1% on a currency neutral basis. Diluted EPS for the quarter came to $1.47 per share compared to $1.52 per share in the previous year, which is a decline of 3.3%, or flat on a currency neutral basis.
The results for the current quarter included an exceptional charge of $22 million ($0.07 per share) in respect to an antitrust class action settlement which is pending. Adjusting for this charge, EPS from continuing operations works out to $1.54 per share and if further adjusted for the excise tax on medical devices, comes to $1.58 per share, which is a 7.2% growth on a currency neutral basis. For the nine months ended June 30, 2013, EPS was $4.21 per share compared with $3.95 per share year-over-year, a growth rate of 6.6% or 7.8% on a currency neutral basis. Adjusting for the medical device excise tax, the figure would be $4.37 per share, an increase of nearly 12%.
The BD Medical segment reported global revenues of $1.14 billion, representing growth of 6.6% over the previous year and 7.9% on a currency neutral basis. This reflects strong growth in all three business units. For the nine months ending June 30, 2013, revenues grew by 4.7% or 5.8% on a currency neutral basis. The BD Diagnostics segment reported global revenues of $656 million, a 2% increase over the previous year and an increase of 3.6% on a currency neutral basis. Growth was driven primarily by revenues from Preanalytical Systems though this was partly offset by weak Women's Health and Cancer sales in the United States. For the nine months ending June 30, 2013, revenues grew by 3.9% over the previous year. Global revenues from the BD Biosciences segment at $257 million declined by 4.2% over the previous year and 2.5% on a currency neutral basis. Growth in instruments in the U.S. was offset by weaker markets in Europe and government funding delays in Japan. For the nine months ending June 30, 2013, revenues declined by 0.6% but increased by 0.9% if measured on a currency neutral basis.
The outlook for fiscal 2013
The company has reaffirmed its previous full-year guidance on the growth of both revenues and EPS. On a currency neutral basis, revenue growth is expected to be around 5% and EPS is expected to in the range of $5.65 per share and $5.68 per share after considering the charge for the pending antitrust action. The EPS growth would be between 6.5% and 7% over the previous year's figure of $5.37 per share and between 8.5% and 9% on a foreign currency neutral basis. After all adjustments, EPS growth will be in the range of 11% to 11.5%. The company plans to repurchase shares totaling $500 million during fiscal 2013.
The investment case
Many analysts seem to be treading with caution when it comes to Becton Dickinson because of the very rich current valuation as well as concerns about potential growth in the diagnostics business. Though I agree with these concerns, in all fairness, it has to be said that the latest financial performance is solid if not exactly outstanding. Performance was also ahead of expectations on Wall Street, which is a formula for increasing stock returns. The medical business looks promising in terms of growth potential especially in diabetes as the company held its ground despite competition from the likes of Johnson & Johnson (JNJ). Performance in the diagnostics business is more of a mixed bag compared to the likes of Abbott (ABT), Roche (RHHBY.OB) and Danaher (DHR).
The bottom line
I cannot see any great upside for Becton Dickinson stock prices and I believe that the current price is a fair valuation. Against the current price of $100 to $101, analysts have a mean average target price of $100.66 and a median average target price of $100.05. This would imply that growth expectations have already been factored into the current price and I would rate the stock as a Hold.