Becton and Dickinson´s Expansion into Emerging Markets

In this article, let's take a look at Becton, Dickinson and Company (BDX, Financial), a $27.45 billion market cap company, which provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs and other settings.

Investments

Research and development spending last year reached $494.6 million (about 6% of sales), compared with $470million in the previous year. Over the last decade, the company focuses on emerging markets, where the medical products are essential for hospitals. A large presence in those markets helped to grow in those years as well. These regions are expected to generate approximately 25% of the total sales by 2017.

Acquisitions

Through a series of strategic acquisitions, the firm expands its scope. The recent past showed the acquisitions of Accuri Cytometers, Inc., a developer and manufacturer of personal flow cytometers for researchers, Carmel Pharma, AB, a Swedish company that manufactures the PhaSeal System; Sirigen Group Ltd., a developer of polymer dyes used in flow cytometry and Safety Syringes, a developer of antineedlestick device for prefilled syringes.

Revenues, Margins and Profitability

Looking at profitability, revenues increased by 1.78% but earnings per share decreased in the most recent quarter compared to the same quarter a year ago ($1.2 vs $1.37). During the past fiscal year, the company increased its bottom line. It earned $6.00 versus $4.67 in the previous year. This year, Wall Street expects an improvement in earnings ($6.60 versus $6.00).

The gross profit margin for is considered rather high, at 50.95%, but it has decreased from the same period last year. The net profit margin of 13.56% is ranked higher than 88% of the 291 Companies in the Medical Instruments & Supplies industry.

The net income has decreased by about 13% when compared to the same quarter one year ago, from $271.00 million to $236.00 million.

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.

The company has a current ROE of 22.21% which is higher than the industry median and the ones exhibit by CGI Group (GIB, Financial), Amdocs (DOX, Financial) and Teradata (TDC, Financial). 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, Igate (IGTE, Financial) could be the option. For more attractive ROE, Gartner (IT, Financial) has an extremely good ratio. 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 24.2x, trading at a discount compared to an average of 45.3x for the industry. To use another metric, its price-to-book ratio of 5.40x indicates a premium versus the industry average of 3.79x while the price-to-sales ratio of 3.30x is above the industry average of 2.93x.

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 $21.147, which represents a 16.2% compound annual growth rate (CAGR).

Final Comment

As outlined in the article, Becton Dickinson is the world's largest manufacturer and distributor of medical surgical products and continues to generate steady cash flows, keeping itself as an industry-leading dividend as well.

The PE relative valuation and the return on equity that significantly exceeds the industry average and make me feel bullish on this stock.

The Vanguard Health Care Fund added this stock to its portfolios in the last quarter of 2014.

Disclosure: Omar Venerio holds no position in any stocks mentioned