We reiterate our Neutral recommendation for Becton, Dickinson and Company (BDX) following its mixed first-quarter fiscal 2011 financial results. Earnings for the quarter topped the Zacks Consensus Estimate but revenues fell short of forecast primarily due to a drop in domestic sales.
As in the previous quarter, Becton, Dickinson again experienced higher growth in emerging markets, which accounted for over 20% of revenues.
Among some noteworthy sub segments, Diabetes Care did well with sales shooting up 6.1% year over year. However, this was offset by lackluster performance by several business units, including Pharmaceutical Systems (down 15.3%), and Diagnostic Systems (down 2.6%).
Despite indifferent results in the short term, Becton, Dickinson’s long-term guidance remains robust. Both revenues and adjusted earnings per share are expected to grow at an encouraging pace till fiscal 2013. Furthermore, margins have improved following the company’s cost containment and efficiency measures. Becton, Dickinson’s cash flow remains strong and management is committed to efficiently deploying cash flow for increasing returns to shareholders through its sizeable share repurchase program.
We remain cautious about Becton, Dickinson due to the lack of any major short-term catalyst. The rising demand for safety-needle products (with higher price points and margins) was the primary driver of the company’s past growth, which is not expected to continue, given that the U.S. market is predominantly already penetrated. On the other hand, Becton, Dickinson anticipates that future sales will be driven by strong demand for its next-generation safety pen needles, which will be launched in the second half of the current fiscal year.
We are hopeful that growth may recover in the future with the European Union adoption of safety needle requirements and recovery in research markets. Becton, Dickinson’s preeminent global healthcare products franchise remains partly insulated from volatile macroeconomic conditions and structural deficiencies elsewhere in the healthcare delivery field.
Becton, Dickinson faces a wide range of competitors in each of its three business segments. The company competes, in niches, with different companies such as Baxter International (BAX) among others. Our recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).
BAXTER INTL (BAX): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis Report
Zacks Investment Research
