There are only so many times you can lament the malaise in the health care sector, but the fact is that it is a macro trend that is impacting almost every large company in the space. Becton Dickinson (NYSE: BDX) is built as a company with solid exposure to patient visit and procedure trends and that is working against the company now, as baseline procedure trends are weak and the company's pipeline is in a lull. While there is value here, investors could be looking at a stagnant stock for a little while.

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A Mediocre End to the Year
BD delivered a mixed end to its fiscal year, slightly beating on the top line and missing slightly on the bottom. Reported revenue growth surpassed 9%, but constant-currency growth was a much more modest 4% and U.S. growth was just barely above 1%. What growth there was, was remarkably balanced across the three major units: BD Medical and BD Diagnostics both posted 3.8% constant currency revenue growth, while Bioscience grew 4.7%.

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Profitability was mixed. Foreign currency helped to weigh on gross margin, which fell about 60 basis points. Operating income grew just under 7% and the company lost about a half-point of operating margin. R&D spending was up just 2% from last year, in the fiscal fourth quarter, and full-year R&D spending was only 6% of revenue; arguably too low for a company that needs to balance stable recurrent revenue, with some technology-driven growth. (To know more about R&D, read: Buying Into Corporate Research & Development. )

Balancing Low Procedure Volume with Some Growth
It is not as though Becton Dickinson has no growth levers. Companies like ICU Medical (Nasdaq: ICUI), Baxter (NYSE: BAX) and CareFusion (NYSE: CFN) have pointed to iffy growth in needle safety and infusion sets, but the company continues to do well with its insulin pens and drug injection systems. As diabetes and insulin continue to be growth markets for Eli Lilly (NYSE: LLY), Sanofi (NYSE: SNY) and Novo Nordisk (NYSE: NVO), this offers some upside for BD, both in insulin and injectable diabetes medications.

Challenges in Diagnostics
Routine diagnostics is getting decidedly less routine. Companies like Qiagen NV (Nasdaq: QGEN), Gen-Probe (Nasdaq: GPRO) and Hologic (Nasdaq: HOLX), not only have to play a competitive game of leapfrog in women's health, but are also seeing the market itself shift, as different authorities give different recommendations on the frequency of testing. Likewise, BD, Abbott (NYSE: ABT) and Cepheid (Nasdaq: CPHD), as well as many of the other aforementioned companies, battle it out in hospital-acquired infections and see plenty of competition coming from small diagnostic companies.


The Bottom Line
There's little to argue about when it comes to the quality of BD. The problem is that the market is often seduced by growth and only slowly rewards quality. For patient investors who can think in multi-year terms, that is just fine; it gives them a chance to buy quality names, like Becton Dickinson, at good prices.

Investors expecting more bang for their bucks, though, may not be so well-suited for BD at this point in time. Management is probably being overly conservative, but guidance for next year suggests no particular pick-up in volumes and the pipeline is not very exciting at present. Moreover, listening to the commentary from companies like Johnson & Johnson (NYSE: JNJ), Abbott and Siemens AG (NYSE: SI), suggests that this is not an especially unusual viewpoint. (For additional reading, check out: Investing In The Healthcare Sector. )

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At the time of writing Stephen D. Simpson did not own shares in any of the companies mentioned in this article.