Becton Dickinson (NYSE:BDX) sells healthcare necessities, including needles, syringes and other basic supplies that medical professionals use to collect and analyze their specimens. Sales and profits aren't expanding as briskly as in recent years, but there are still plenty of reasons to consider investing in the stock.
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First Quarter Recap
Revenues advanced a modest 2.5% to $1.9 billion. Excluding foreign currency translations, Becton stated that, on this "foreign currency-neutral" basis, sales rose 2.4%, meaning foreign exchange impacts were minimal during the quarter. U.S. revenue was flat at $828.8 million, or roughly 44% of total sales. The rest stemmed from international revenues, which rose a much stronger but still modest 4.5%.

By division, the medical segment, which sells Becton's flagship needles, syringes and related consumable medical products, grew 2.6% to account for just over half of the total top line. The diagnostic unit sells systems to help medical clinics, labs such as Quest Diagnostics (NYSE:DGX) and Laboratory Corporation (NYSE:LH), and hospitals such as Health Management Associates (NYSE:HMA) and HCA Holdings (NYSE:HCA) collect and transport medical specimens. It reported a 3.2% sales rise to account for nearly a third of total sales. The bioscience unit eked out 0.9% growth to account for the remaining 17% of sales. It provides research and clinical tools to help its clients analyze and develop drugs, such as during the clinical trial process.

Reported operating income fell 13.2% to $358.6 million, while net income fell a slightly more severe 16.8% to $263 million. Share buybacks tempered the earnings per diluted share decline to 11% as the bottom line fell to $1.21. Management attributed the negative sales leverage to "difficult pricing comparisons, higher raw material costs and higher expenses from recent acquisitions." (To know more about income statements, read Understanding The Income Statement.)

Though currency fluctuations didn't have much impact on the first quarter, Becton expects it to reduce earnings from its previous guidance of $5.75 to $5.85 per diluted share. It now projects a range of $5.60 to $5.70, or within the range of the $5.62 per diluted share it reported last year. It still expects sales growth of 2 to 4% from the $7.8 billion reported last year.

The Bottom Line
Becton Dickinson isn't growing very rapidly lately, but still has a stellar long-term track record. Over the past decade, sales are up close to 8% annually while earnings are up more than 14%. During this timeframe, management has steadily boosted profitability, with operating earnings rising from less than 17% to right around 22%. Returns on equity are up above 25% while return on invested capital is consistently in the mid to high teens.

At a forward P/E of 12.3, the valuation is reasonable. Becton's sales are relatively stable given it sells basic necessities in the healthcare industry, which itself is relatively recession resistant. The majority of sales also stem from overseas, which should see above-average growth going forward. Profitability is high, the dividend yield is decent at 2.3%, and there is upside potential should profit growth start trending back up closer to historical levels. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

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