Medical device and technologies product provider C.R. Bard (NYSE:BCR) has posted steady, albeit modest growth trends over the last decade or so. Its founding goes back more than a century and provides sales and profit stability with a certain amount of downside protection. However, the richer valuation could handicap future upside potential.
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First Quarter Recap
Sales improved 4% to $730 million. Sales in the United States accounted for 68% of the top line and improved a modest but respectable 2%. International sales made up the rest and grew a healthy 10%, with currency fluctuations dragging down the reported total by a single percentage point. Bard also breaks its sales up by four primary operating segments. Oncology (catheters, feeding devices) was the strongest performer and reported 7% growth to account for 27.2% of total sales. Vascular (heart products such as stents and grafts), the largest segment at 28.7% of the quarterly total, reported a 5% growth. Urology (catheters and stents - 25.3% of total sales) logged a modest 3% growth while surgical specialties (soft tissue meshes and patches) were flat at 15.7% of sales. The "other" category accounted for the rest of the top line and grew 4%.
Pretax income also improved 4% to $191.4 million as cost growth kept pace with the sales expansion. Slightly lower tax expense growth resulted in net income growth of 5.2% to $138.7 million, or $1.60 per diluted share.
SEE: Understanding The Income Statement
Outlook and Valuation
For the year, analysts' project sales growth of almost 5% and total sales just over $3 billion. The consensus earnings projection currently stands at $6.67 which, when taking the current stock price of $98 per share, equates to a forward P/E of 14. This is below Bard's five-year average above 20, which is also the industry average. Rivals include Covidien (NYSE:COV), Becton Dickinson (NYSE:BDX), Boston Scientific (NYSE:BSX) and Teleflex (NYSE:TFX), with only Teleflex smaller in terms of sales over the past year.
The Bottom Line
Over the past decade, Bard has grown both sales and earnings at around 10% annually. Growth has slowed to the high single digits over the past five years on average, but international growth has the potential to boost overall trends as it continues to account for a higher proportion of the total top line.
The stock looks pricey based on the P/E, but is less so when looking at cash flow. Last year, Bard operated approximately $7.26 per share in free cash flow, for a trailing cash flow multiple of 13.5. Overall though, this is still a rich multiple given the modest operational growth. On the flip side, there is ample downside protection as product demand is relatively recession resistant.
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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.