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Becton Dickinson & Co: Cash Flow Valuation Update

|Includes:Becton, Dickinson and Company (BDX)

Current Price: ~ $85/share
Yield: ~ 2.20%

Becton, Dickinson & Co., is engaged in manufacturing and sale of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, life science researchers, clinical laboratories, industry and the general public.

Estimated WACC for the firm today is 7.93% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year FCF $Millions
2003 645
2004 832
2005 909
2006 594
2007 662
2008 1036
2009 1016
2010 1112
2011 1111
2012 1207

Average Annual Growth FCF: ~ 10%

CAGR FCF: ~ 7%
Consensus Forecast Industry 5-Year Growth: ~ 16% per year

Consensus Forecast Company 5-Year Growth: ~ 7% per year

Internal Growth Rate: ~ 8%

Sustainable Growth Rate: ~ 22%

Scenario 1
Average FCF (2012, 2011, 2010) is $1143 million

  • Start at $1143 million FCF
  • Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year FCF $Millions
0 1143
1 1223
2 1309
3 1400
4 1498
5 1603
Terminal Value 21635

The firm's future free cash flows, discounted at a WACC of 7.93%, give a present value for the entire firm (Debt + Equity) of $20342 million. If the firm's fair value of debt is estimated at $4317 million, then the fair value of the firm's equity could be $16025 million. $16025 million / 197 million outstanding shares is approximately $81 per share and a 20% margin of safety is $65/share.

Scenario 2
All else being equal,

  • Assume a 5-year growth rate in FCF of 7% per year, then 2% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year FCF $Millions
0 1143
1 1223
2 1309
3 1400
4 1498
5 1603
Terminal Value 28933
  • Present Value of the entire firm (Debt + Equity): $25326 million
  • Value of Equity: $21009 million or $107/share
  • 20% margin of safety is $86/share

Sources

Morningstar.com

Yahoo! Finance

BD.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: BDX