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I am an author of books related to the decision framing and optimizing processes of Buffett and Munger. These books are available at www.frips.com and: http://www.amazon.com/Bud-Labitan/e/B002D1ERT4 With integrity and patience, we can also earn superior profits by carefully evaluating facts and... More
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The Four Filters Invention of Warren Buffett and Charlie Munger
  • A Value Guy looks at Beckman Coulter Inc. 0 comments
    Jun 6, 2010 10:47 PM | about stocks: BEC

    Beckman Coulter, Inc. is a manufacturer and marketer of biomedical testing instrument systems, tests and supplies. It operates in two segments: segments: Clinical Diagnostics and Life Science. The Company’s products are classified into two categories, including clinical diagnostics and life science research instruments and tools. The Company’s clinical diagnostics produce information physicians use to diagnose disease, make treatment decisions and monitor patients in hospitals and other critical care settings worldwide. Its life science research instruments and tools are used by scientists to study biological problems, including the causes of disease, identifying new therapies and testing new drugs.On April 14, 2009, the Company acquired Cogenics, genomics division of Clinical Data Inc. On August 3, 2009, it acquired the diagnostics systems business from Olympus Corporation. In August 2009, the Company announced the creation of Beckman Coulter Genomics.
    Last Price 56.2

    Does BEC make for an intelligent investment or intelligent speculation today?

    Starting with a base estimate of annual Free Cash Flow at a value of approximately $230,000,000 and the number of shares outstanding at 70,100,000 shares; we used an assumed FCF annual growth of 9 percent for the first 10 years and assume zero growth from years 11 to 15.  Review the Free Cash Flow record here:


    The resulting estimated intrinsic value per share (discounted back to the present) is approximately $58.53.

      Market Price = $56.29
      Intrinsic Value = $58.53  (estimated)
      Debt/Equity ratio = .68
      Price To Value (P/V) ratio = .96  and the estimated bargain = 4. percent.

    Before we make a purchase, we must decide ( filter #1 ) if BEC is a high quality business with good economics. Does BEC have ( filter #2 ) enduring competitive advantages, and does BEC have ( filter #3 ) honest and able management.

    The current price/earnings ratio = 23.4
    It 's current return on capital = 4.96.
    Using a debt to equity ratio of .68, BEC shows a 5-year average return on equity = 12.4

    Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding.

    Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

    Does BEC make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today?

    Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is BEC the best place to invest our money today?


    How will BEC compete going forward? Keep in mind that a financial report like this is a reflection of the past and present. It may be used to project a future, but it may not account for factors yet unseen. Therefore, pay attention to competitive and market factors that may affect changes in profitability.

    In summary, using a debt to equity ratio of .68, BEC shows a 5-year average return on equity = 12.4 .
    The estimated intrinsic value per share (discounted back to the present) is approximately $58.53. The Market Price = $56.29  and the Debt/Equity ratio = .68
    The Price To Value (P/V) ratio = .96  and the estimated bargain = 4. percent.
    Going forward, are there any tranformational catalysts or condition indicators imaginable on the horizon?

    As always, I appreciate hearing your views,

    Bud Labitan
    Author of the new book Valuations

    Author of 'The Four Filters Invention of Warren Buffett and Charlie Munger'

    Labitan Partners
    budlabitan@ aol.com


    Disclosure: no positions
    Stocks: BEC
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