Becton Dickinson More Interesting Than You Think

By Stephen D. Simpson, CFA | April 26, 2010 AAA

For many years, Becton Dickinson (NYSE:BDX) has been summarily dismissed by a lot of portfolio managers as "too boring". Well, their loss. Although the stock of this diversified health care and biosciences company could not match the pace of health care all-star Medtronic (NYSE:MDT), it stacks up quite well against the likes of Abbott Labs (NYSE:ABT), Baxter (NYSE:BAX) and many other more "exciting" names. Proof, perhaps, that the steak is more satisfying than the sizzle.

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A Quiet Quarter
The first quarter of 2010 was pretty much medium, with little to get excited about in either direction. Revenue growth of about 7% was in line with expectations, while the earnings per share (ex-items) were four cents ahead of the average estimate.

Results across the company's three major business lines were mixed. Strong results in diabetes care and pharmaceutical systems helped offset weakness in medical surgical systems (largely injection, infusion and infection-prevention products) in the BD Medical segment. Diagnostics saw results in cancer and STD testing offset a decline in flu testing, while cell analysis products helped boost results in the biosciences business. (For related reading, check out A Checklist For Successful Medical Technology Investment.)

New Tech Can Maintain the Momentum
It seems practically a given that Becton Dickinson will increasingly tie the future of its growth to advanced diagnostics and bio-research products. In diagnostics, the company faces stiff competition from companies like Roche (Nasdaq:RHHBY), Qiagen (Nasdaq:QGEN) and Gen-Probe (Nasdaq:GPRO) in its STD testing franchise, and Cepheid (Nasdaq:CPHD) in hospital-acquired infections.

To compete, the company plans to roll out a new molecular diagnostics platform, the BD MAX, in 2011. This automated real-time PCR platform could go a long way in tapping the fast-growing molecular diagnostics market. Of course, Cephied and Gen-Probe have their own automated systems (with Gen-Probe's new Panther expected in the U.S. in 2011), so the battle should really get interesting at that point.

Likewise, expect the company to continue to look to innovate or acquire to build up the biosciences business. With BDX's existing strength in flow cytometry, it wouldn't be surprising to see them interested in a fast-growing company like Luminex (Nasdaq:LMNX). But even if the company foregoes acquisitions (or at least acquisitions of that size), expect management to preferentially invest in a market segment whose growth should outpace that of BDX's other markets by a reasonable margin.

A Stock That Gives You Second Chances
Becton Dickinson isn't all that expensive at today's prices. That said, this is a stock that always seems to give investors a pullback of at least 10% every year. Perhaps we already saw that move when the stock went from about $80.50 around the end of last year to below to below $75 in early February, or maybe there is a second slide to come. In either case, you don't have to rush to buy this stock. It is a fine company as is, but if you can get it for 10% less, why not wait it out?

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