Investors looking to add a defensive company to their portfolio without sacrificing growth should consider medical technology firm Becton, Dickinson and Company (BDX). The company manufactures and sells a wide range of medical supplies, devices, laboratory equipment and diagnostic products.
As a healthcare company, revenue and earnings shouldn’t fluctuate much with the overall company. That’s good news if another recession is right around the corner.
In fact, management recently increased its EPS guidance for 2011 following solid second quarter results. Analysts are currently projecting 15% EPS growth in 2011 and 11% growth in 2012.
In addition, the company generates strong free cash flow and has been consistently raising its dividend over the last decade. It currently yields 1.9%.
Second Quarter Results
Becton, Dickinson and Company reported stellar second quarter results in late April. Earnings per share came in at $1.38, beating the Zacks Consensus Estimate of $1.30. It was a 13% increase over the same quarter in 2010.
Revenue rose 7% to $1.922 billion, well ahead of the $1.855 billion consensus. The BD Medical segment, which accounted for 51% of total revenue, rose 7% due in part to strong sales of Diabetes Care and Pharmaceutical Systems products.
The BD Diagnostics segment, which made up 31% of total revenue, increased 9% due in part to solid growth in the Preanalytical Systems safety-engineered products and in Diagnostic Systems infectious disease platforms.
Geographically, revenues were strongest outside the U.S. as sales rose 9%, reflecting continued strength in the emerging markets. Approximately 57% of sales came from overseas. Revenues in the U.S. were up 5%.
Overall, operating income was up 6% year-over-year as a 19% increase in R&D expenses offset a slightly improved gross margin.
Outlook
Management raised its EPS guidance for 2011 following solid second quarter results. The company now expects to earn between $5.55 and $5.65 per share, up from previous guidance of $5.45 to $5.55.
This prompted analysts to revise their estimates higher for both 2011 and 2012. The 2011 Zacks Consensus Estimate is $5.62, 15% higher than 2010 EPS. The 2012 consensus estimate is currently $6.21, corresponding to 11% EPS growth.
It is a Zacks #2 Rank (Buy) stock.
Dividend
Becton, Dickinson and Company has a solid history of steadily raising its dividend:
It currently yields 1.9%.
The company’s payout ratio is just 31%, leaving plenty of room for more double-digit dividend hikes in the near future.
Valuation looks very reasonable with shares trading at 15.1x forward earnings, a discount to the industry average of 19.9x.
Its price to sales ratio is 2.5, in-line with its peers.
BDX has relatively fat margins and consistently generates strong returns on equity. ROE over the last 12 months was a solid 23.8%, compared with just 7.6% for the industry.
The company is headquartered in Franklin Lakes, New Jersey and has a market cap of $18.6 billion.
Conclusion
Becton, Dickinson and Company should continue to see solid growth over the next few years regardless of what the overall economy is doing. That should provide much needed stability to a portfolio if the U.S. is headed towards another recession.
With strong growth projections, a rapidly rising dividend and reasonable valuation, the stock looks like an attractive buy for the long-term investor.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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