In this article, let's take a look at CR Bard Inc. (BCR, Financial), a $11.21 billion market cap company, which is a diversified maker of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology, and specialty surgical markets.
Key Strategies
The company was a distributor of urological devices, but now turned into a diversified medical device firm. Sales in 2013 came from: oncology 28%, vascular 27%, urology 25%, surgical specialties 16% and other 3% products.
The company operates in a highly competitive industry but we believe is capable of generating growth in sales due to its new product development efforts. The company focuses on developing technologies to have less invasive procedures and with lower costs. Last year, the firm invested in R&D $295.7 million, up from $203.2 million in the prior year. Further, CR Bard plans to grow sales through strategic acquisitions, principally small to medium-sized deals.
Investing in high-growth areas and differentiating its products through clinically proven efficacy are two strategies that make Bard to be in the right direction.
Expansion
The company´s focus has been China. Also, it is heavily investing in other emerging markets, countries in Europe, Asia and Latin America. Additionally, Brazil is also considered to be a major growth driver for the company.
A Major Risk
A main risk in this industry is the low switching costs, because the firm´s products are subject to substitution by other lower-cost products. The only way to offset this is to improve quality and making better patient outcomes to retain customers.
Revenues, Margins and Profitability
Looking at profitability, revenue growth by 8.84% led earnings per share increased in the most recent quarter compared to the same quarter a year ago (-$1.59 vs -$2.03). The net income increased by 26.1% when compared to the same quarter one year prior, from -$161.60 million to -$119.40 million.
We have to emphasize that net operating cash flow has increased in a very good way (127%) to $169.70 million when compared to the same quarter of last year.
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| BCR | CR Bard | 33.03 |
| CFN | CareFusion Corp. | 7.15 |
| VAR | Varian Medical Systems Inc | 25.57 |
| HOLX | Hologic Inc. | -60.41 |
| STJ | St Jude Medical | 17.09 |
| ZMH | Zimmer Holdings | 12.08 |
| Â | Industry Median | 8.68 |
The company has a current ROE of 33.03% which is higher than the industry median. In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Varian Medical Systems (VAR, Financial) could be the option. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 15.2x, trading at a discount compared to an average of 34.6x for the industry. To use another metric, its price-to-book ratio of 6.8x indicates a premium versus the industry average of 3.25x while the price-to-sales ratio of 3.74x is above the industry average of 2.8x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $20.214, which represents a 15.1% compound annual growth rate (CAGR).
As we can see, the company's shares have risen by 29.30% over the past year.
Final Comment
As outlined in the article, the company has several long-term drivers like the new product introductions or the expansion to promising markets. Further, strategic acquisitions may boost revenues in the near future.
The PE relative valuation and the return on equity that significantly exceeds the industry average and make me feel bullish on this stock.
Hedge fund gurus like Louis Moore Bacon (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Robert Olstein (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
