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Stock Analysis: Becton, Dickinson and Co. (BDX)

Linked here is a detailed quantitative analysis of Becton, Dickinson and Co. (BDX). Below are some highlights from the above linked analysis:

Company Description: Becton, Dickinson and Co. provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs, and other settings.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number
BDX is trading at a discount to 1.), 2.) and 3.) above. The stock is trading at a 9.6% discount to its calculated fair value of $83.39. BDX earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
  1. Free Cash Flow Payout
  2. Debt To Total Capital
  3. Key Metrics
  4. Dividend Growth Rate
  5. Years of Div. Growth
  6. Rolling 4-yr Div. > 15%
BDX earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. BDX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 37 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
  1. NPV MMA Diff.
  2. Years to > MMA
BDX earned a Star in this section for its NPV MMA Diff. of the $2,133. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as BDX has. If BDX grows its dividend at 15.0% per year, it will take 6 years to equal a MMA yielding an estimated 20-year average rate of 3.98%.

Other: BDX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index.

Conclusion: BDX earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks BDX as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $120.24 before BDX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 37 years of consecutive dividend increases. At that price the stock would yield 1.23%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.8%. This dividend growth rate is less than the 15.0% used in this analysis, thus providing only a margin of safety. BDX has a risk rating of 1.00 which classifies it as a low risk stock.

In spite of the competitive landscape in the medical equipment market and reduced customer spending, BDX has seen product demand and favorable pricing in excess of industry averages. The company's needle and surgical business has provided investors with robust returns for years. As a result of BDX's innovation and judicial deployment of capital, its business continued to prosper during the economic downturn. The stock is favorably priced below my buy price of $83.39. However, I hesitate to buy with its yield below 2.0%. For additional information, including the stock's dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in BDX (0.0% of my Income Portfolio). See a list of all my income holdings here.


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