Becton, Dickinson and Company (BDX) released Q3 and YTD 2019 results and reiterated FY2019 guidance on August 6, 2019. BDX's share price jumped but in the current environment I envision an impending share price pullback which should provide investors with an opportunity to acquire shares in this high quality company at a more favorable valuation.

Summary

  • Following the release of Q3 and YTD2019 results and reaffirmed FY2019 guidance, BDX’s share price jumped on August 6th.
  • BDX has multiple planned product launches. Investors would be advised to look beyond the reduction in planned drug-coated balloons (DCB) sales which only represent about 1% of BDX’s total business.
  • Management remains committed to delever BDX’s balance sheet. Gross leverage has been reduced to 3.7 times as at the end of Q3 versus 3.9 times as at FYE2018.
  • Debt reduction is a key priority but investors can likely expect an increase in BDX’s dividend (mid-November 2019 declaration) so that BDX’s lengthy track record (47 years) of dividend increases does not get interrupted.

Introduction

In my May 12, 2019 Becton, Dickinson and Company (BDX) article I reviewed Q2 2019 results and FY2019 guidance. Based on my analysis I viewed shares as being attractively valued at $225.40 and on May 13th I acquired additional shares at $225.05 for an account on which I do not disclose details.

Subsequent to my most recent purchase, BDX’s share price appreciated to ~$258 on July 30th. Very recent volatile market conditions, however, resulted in BDX retracing to ~$229 the morning of August 6th. I would have acquired additional shares but was indisposed and missed the buying opportunity. As I compose this article following the August 6th market close, BDX is trading at ~$242.14.

Now that BDX has released Q3 and YTD2019 results on August 6th I take this opportunity to very briefly review this high quality company.

Q3 and YTD2019 Results

Q3 and YTD2019 results can be accessed here.

Despite significant FX headwinds in Q3, BDX delivered adjusted EPS at $3.08 which is the first time this metric has surpassed $3/share since the closing of the C.R. Bard acquisition.

As anticipated, BDX's results include a reduction of approximately 50% in planned drug-coated balloons (DCB) related sales in Q3.

BDX gained the Lutonix DCB business when it acquired C.R. Bard in 2018; DCBs represented an estimated $0.2B in sales and were among the company’s faster-growing product-lines. In recent quarters, DCB sales have taken a hit due to safety concerns that emerged in December 2018 and grew after the January and March FDA advisory letters.

In June 2019, the FDA released an update to its March 2019 Letter to Healthcare Providers on the subject matter of DCBs.

FY2019 Guidance

While BDX continues to work with the FDA, investors should recognize that DCBs are ~ 1% of the total BDX business. There are multiple planned product launches in each of BDX’s 3 lines of business which should offset the decline in the DCB business.

Source: BDX – Q3 2019 Earnings Presentation – August 6 2019

Despite various headwinds, the negative impact of divestitures, DCBs, and foreign exchange headwinds, BDX has reaffirmed its FY2019 adjusted EPS guidance.

Source: BDX – Q3 2019 Earnings Presentation – August 6 2019

Adjusted diluted EPS guidance of $11.65 - $11.75 remains unchanged. This represents a 6% - 7% increase from $11.01 realized in FY2018.

Credit Ratings

There has been no change in BDX’s credit ratings subsequent to my May 12, 2019 article. BDX’s credit ratings (BBB (S&P) BBB-(Fitch) Ba1 (Moody’s)) place it in the top tier of the non-investment grade speculative category. (cont’d.)

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Disclosure: I am long BDX.

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