Embecta: Not Love At First Sight
Summary
- Embecta was spun off from Becton, Dickinson on April 1,2022.
- It has a solid but very slow growing business in diabetes delivery.
- While the valuation is modest, there is little to excite the investor from the initial information provided by the company.
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Embecta (NASDAQ:EMBC) was spun off on April 1, 2022 from Becton, Dickinson (BDX). The company describes itself as the largest producer of diabetes injection devices with a ~100-year history of reliability and quality. Investors should review the Investor Day Presentation given on March 7, 2022 for the basic information on the new company. The company gets about 53% of its current revenues from the US with the rest of sales International. 2022 revenues are expected to be around $1.2B.
Sadly the incidence of diabetes continues to increase worldwide. The Investor Presentation projects the largest growth in Africa and in Asia/Australia. The increase in incidence in the US is projected to grow about 24% from 2021 to 2045. In Europe, the incidence is projected to grow about 13% over that same time period. Overall, the market for the company's products can be expected to grow in low single-digits based upon this data. Expansion of their business in Asia and Africa might increase these numbers somewhat.
Embecta management is coming largely from Becton, Dickinson. I would expect it to run business in a conservative manner with solid regulatory oversight and capital controls. The balance sheet appears to be solid and may provide adequate room for bolt-on acquisitions.
The biggest issue that I have with Embecta is slow growth in revenues and earnings. Over the period of 2019-2021 where the company provides data, revenue growth is only about 2%/year. While the Investor Presentation describes itself as well-positioned for growth, it is hard to expect much in what is a somewhat sleepy category. The company sees some possibility of moving into infusion/pumps but it also points out that pumps have not been the patient preferred delivery route.
Valuation
Based upon my preliminary calculation, the company has a price to earnings multiple around 9.75 given $546 MM in profits with 56 million shares outstanding.
This multiple is reasonable for a company with the growth of Embecta.
Recommendation
My first very early evaluation of this company is that it is not exciting. I have small positions having owned Becton, Dickinson stock. My plan at this point is to hold these small positions at least for an additional quarter to see if the company has some more exciting to relate. But if not I will most probably sell.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of EMBC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I received shares in Embecta as a result of the spin-off from Becton Dickinson
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