Becton, Dickinson: Acquisitions Underwhelming

Jul. 27, 2022 6:49 PM ETBecton, Dickinson and Company (BDX)ABT, MDT, SYK, PHG, BAX, BSX, ZBH, ISRG, EW, HOLX, SNN, STE, RMD, QDEL
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Summary

  • We believe the healthcare sector's strong growth momentum with average revenue growth of 3.8% QoQ indicates a positive outlook, with the equipment industry forecasted at a market CAGR of 5.5%.
  • For the healthcare equipment industry, we believe the outlook is supported by the average guidance of 9.4% but see Becton, Dickinson lagging behind its peers in Q1 with below-industry average growth (0.5%).
  • While Becton, Dickinson had completed several acquisitions, however, we expect its M&A activities to be insignificant to its growth, as its revenue contributions from its acquisitions are below 0.03%.

BD Canada head office building in Mississauga, Ontario,Canada

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In this analysis of Becton, Dickinson and Company (NYSE:BDX), we analyzed the healthcare sector and the equipment market based on its Q1 2022 TTM market share and growth to determine how the company performed in relation to its competitors. Lastly, we looked into the company’s revenue growth boosted by acquisitions.

Strong Growth Momentum in Healthcare Sector

To determine the performance of the healthcare sector in Q1 2022, we compiled the top 5 companies’ revenue growth within each industry in the Healthcare sector including Equipment, Supplies, Distributors, Services, Managed Health Care, Health Care Technology, Biotechnology, Pharmaceuticals and Life Science Tools.

Industry (Healthcare)

Q1 2022 TTM QoQ Growth

Equipment*

1.9%

Supplies

2.0%

Distributors

3.2%

Services

1.2%

Managed Health Care

4.1%

Health Care Tech

5.6%

Biotechnology

6.2%

Pharmaceuticals

6.5%

Life Science Tools

3.3%

Average Healthcare

3.8%

*Top 15

Source: Company Data, SeekingAlpha, Khaveen Investments

Based on the table above, the average growth of the healthcare sector in Q1 2022 based on TTM revenue growth of the top 5 companies within each industry was 3.8%. 4 out of the 9 industries had above-average growth including Managed Health Care, Biotechnology and Pharmaceuticals. On the other hand, the remaining industries including Healthcare Equipment (1.9%) had below-average growth. The pharmaceuticals industry had the highest revenue growth rate of 6.5% within the healthcare sector followed by biotechnology with the second highest revenue growth rate of 6.2%.

In comparison, the biotechnology and pharmaceutical markets were forecasted to grow at a CAGR of 17.8% and 7%. In comparison, the global medical devices market is forecasted by Fortune Business Insights to grow by a lower CAGR of 5.5% through 2029. For the healthcare sector as a whole, the rise in demand for healthcare services is attributable to factors such as population growth, income levels and health awareness according to Frost & Sullivan.

Overall, while we believe the healthcare sector could have a positive outlook in 2022, as all of the industries had positive revenue growth in Q1 2022 which indicates the strong momentum in the sector, we expect the healthcare equipment industry to lag behind higher growth industries such as biotechnology and pharmaceuticals which were forecasted to grow at a higher long-term CAGR.

Positive Growth Outlook of 9.4% for Healthcare Equipment Industry

healthcare equipment market share

Company Data, Khaveen Investments

Company

Q1 2022 TTM Revenue ($ mln)

Market Share (Q1 2022) TTM

Q1 2022 TTM QoQ Growth %

Actual Revenue vs Analyst Consensus Difference %

Revenue Guidance

Abbott Laboratories (ABT)

44,514

22.4%

3.3%

8.2%

7.5%

Medtronic (MDT)

31,686

15.9%

-0.3%

-4.0%

4.5%

Becton, Dickinson and Company

20,031

10.1%

0.5%

4.8%

7.25%

Stryker Corporation (SYK)

17,430

8.8%

1.9%

2.2%

7.00%

Koninklijke Philips N.V. (PHG)

19,081

9.6%

-2.3%

-2.3%

N/A

Baxter International Inc. (BAX)

13,545

6.8%

6.0%

4.5%

24.50%

Boston Scientific Corporation (BSX)

12,162

6.1%

2.3%

2.7%

4.50%

Zimmer Biomet Holdings, Inc. (ZBH)

7,898

4.0%

0.8%

4.4%

-1.00%

Intuitive Surgical, Inc. (ISRG)

5,906

3.0%

3.4%

4.2%

14.00%

Edwards Lifesciences Corporation (EW)

5,357

2.7%

2.4%

2.3%

7.5%

Hologic, Inc. (HOLX)

5,392

2.7%

-1.9%

11.6%

N/A

Smith & Nephew plc (SNN)

5,212

2.6%

0.9%

0.0%

4.50%

STERIS plc (STE)

4,585

2.3%

7.9%

2.6%

11.00%

ResMed Inc. (RMD)

3,540

1.8%

2.8%

-3.9%

21.00%

QuidelOrtho Corporation (QDEL)

2,326

1.2%

36.9%

-2.4%

N/A

Average

4.3%

2.3%

9.4%

Source: Company Data, Khaveen Investments

Based on the table above, we analyzed the top 15 healthcare companies by revenue and obtained an average revenue growth QoQ of 4.3% in Q1 2022 ('TTM'). The company with the highest growth was QuidelOrtho with a growth rate of 36.9% followed by STERIS at 7.9% and Baxter International (6%). Only 3 companies (Quidel, Baxter and STERIS) had above-average growth in the quarter. According to Quidel’s management in its latest earnings briefing, its strong growth in the quarter was driven by the performance of its Rapid Immunoassay product portfolio which revenues grew by 275%. In comparison, non-COVID sales grew by 56%.

On the other hand, Becton Dickinson had below industry average growth of 0.5% but still surpassed analyst revenue consensus. Specifically, the company’s COVID-only testing revenues which represented 4.2% of total revenues declined by 55% YoY from $474 mln in the prior year's quarter. Besides Becton Dickinson, 9 companies beat analyst consensus while 4 companies (Medtronic, Philips, ResMed and Quidel) failed to beat analyst consensus estimates.

Furthermore, we compiled the revenue guidance of each company for 2022 of the top 15 companies within the healthcare equipment industry (except Philips, Hologic and Quidel) and obtained an average of 9.4% thus indicating a positive growth outlook.

Insignificant Revenue Contributions from Acquisitions

Based on its latest earnings briefing, the company committed $500 mln for the completion of 4 acquisitions for the fiscal year to date.

We believe that the current environment coupled with our strong cash flow and robust M&A funnel positions us well to create value through our tuck-in M&A strategy while remaining disciplined. - Tom Polen, President, CEO & Chairman

In the past quarter, it completed the acquisition of Cytognos, as an addition to its Biosciences business, with an estimated revenue of $6 mln according to ZoomInfo and 3 acquisitions in the prior quarter including Scanwell Health (estimated revenue of < $5 mln) and TissueMed (estimated revenue of $ 6 mln).

Acquisition

Revenue ($ mln)

% of Total Revenue

Cytognos

6

0.03%

Scanwell Health

<5

0.02%

TissueMed

6

0.03%

Source: Company Data, ZoomInfo, Khaveen Investments

However, despite these acquisitions, the incremental revenue to the company is insignificant as it only represented between 0.02% and 0.03% of its total revenue to the company based on its 2021 revenue ($20.2 bln). Based on its earnings briefing, management highlighted its strong cash flow and robust M&A strategy but expects its revenue growth for the full year in 2022 to be driven by its main segments including BD Legacy (guidance of 6.75% to 7.75%) and RemainCo (7.25% to 8.25%). Thus, we do not expect its M&A activity to be the main driver of its revenue growth for the year.

Risk: Low Revenue Growth

Compared to the healthcare equipment industry, the company had below-average revenue growth of 0.5% in Q1 2022 TTM. Moreover, its revenue guidance of 7.25% for Q2 2022 is below its average growth rate of 10.9% (5-year average) and 10.87% (10-year average), indicating its slowdown in growth.

Verdict

All in all, despite the positive growth of the healthcare sector, the healthcare equipment industry had lagged with below-average growth. Moreover, the company has had below-average growth compared to the top 15 companies within the healthcare equipment industry as well as insignificant revenue contributions from its acquisitions. Therefore, we based our price target on the lower end of analyst consensus at $235.

This article was written by

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Khaveen Investments is a Global Macro Quantamental Hedge Fund managing a tactical asset-allocated portfolio of globally diversified investments. We have interests in 100+ investments across multiple asset classes, countries, sectors and industries. Our investment approach takes both a top-down and bottom-up approach encompassing macro-economic, fundamental, quantitative and technical analysis. We serve accredited investors throughout the globe, which include HNW individuals, SMEs, associations, and institutions. Our investment managers have decades of investment experience between them, with research expertise in emerging technologies such as Artificial Intelligence, Cloud Computing, 5G, Autonomous & ElectricVehicles, FinTech, Augmented & Virtual Reality and the Internet of Things.www.khaveen.com

Disclosure: I/we have a beneficial long position in the shares of BDX 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.

Additional disclosure: No information in this publication is intended as investment, tax, accounting, or legal advice, or as an offer/solicitation to sell or buy. Material provided in this publication is for educational purposes only and was prepared from sources and data believed to be reliable, but we do not guarantee its accuracy or completeness.

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