Leading medical device manufacturer Becton, Dickinson & Co. (BDX, Financial), or BD, recently reported earnings results that showed the company greatly benefited from Covid-19-related sales. BD provides the testing kits and vaccine injection devices being used to combat the virus.
The pandemic remains with us, as many businesses, restaurants and schools are open with limited capacity. The vaccine rollout has begun, but the majority of the U.S. population still has not received even the first dose. This doesn't even take into account people in international markets, both in developed and developing countries, waiting to receive the vaccine as well. Nearly 42% of BD's revenue comes from outside the U.S.
Covid-19 isn't the whole story with BD either, as the company saw growth in many other areas outside of the segments that benefited from the pandemic.
BD reported first-quarter 2021 earnings results on Feb. 4. Revenue grew 25.8% to $5.3 billion and beat Wall Street analysts' estimates by $450 million. Covid-19-related revenue totaled $867 million. Excluding this, revenue grew 5.5% for the quarter. Adjusted earnings per share of $4.55 represented a 71.7% improvement from the previous year and was $1.39 ahead of expectations.
Each segment of the company had at least mid-single-digit growth from the prior year.
The best performer was the BD Life Science segment, which grew 76.2% to $1.98 billion. The Integrated Diagnostic Solutions business saw the bulk of the Covid-19-related sales. The Veritor Plus System, BD's rapid Covid-19 test system, had sales of $688 million. Specimen collection, management and transport was also strong. On the other hand, Biosciences fell 5.2% as a benefit from vaccine research was more than offset by weaker research and clinical activity and a difficult comparison in licensing agreements in the previous year.
BD Medical grew 6.9% to $2.26 billion. Every business within this segment demonstrated growth. Medical Delivery Solutions was up 5.6% due to demand for injectable vaccine devices and higher care and infusion systems sales related to the pandemic. Medical Management Solutions was up 8.4% due to strength in infusion in Europe and IV sets in the U.S. BD saw unexpected strength in medical necessity placements. Pharmaceutical Systems grew nearly 10% due to demand for pre-fillable syringes. Diabetes care was up 5.4%, but this was primarily due to easy comparable results in the first-quarter of fiscal year 2020 and distributor inventory stocking.
The BD Interventional segment saw a 5% increase in revenue due to a high single-digit gain in Urology and Critical Care, where demand for temperature management and urology-related products was robust. Peripheral Interventional grew almost 6% as elective procedures improved, but was still not yet at pre-pandemic levels. Surgery inched higher by 1.3% as sequential demand for infection prevention products and elective outpatient procedures improved in the U.S. Elective surgery has been a challenge for many medical device companies as the health care system rightfully prioritized responding to the pandemic.
U.S. revenue, which accounted for around 59% of the first-quarter total, grew 28.8%, primarily due to pandemic-related demand. International was higher by 21.8% due to strength in the Medical and Life Science segments in Europe.
The gross margin expanded 170 basis points to 58.2% while the operating margin improved 760 basis points to 31.6%. Selling, general and administrative expenses as a percentage of revenue decreased 490 basis points to 21.6%.
BD's balance sheet remains on solid ground. At the end of the first quarter, the company had total assets of $54.7 billion, current assets of $9.5 billion and cash and equivalents of $3.3 billion. This compares to total liabilities of $30.1 billion and current liabilities of $7 billion. The company does have total debt of $17.8 billion, with $1.7 billion due within the next year.
The company generated $1.3 billion of free cash flow during the quarter, which was more than enough to cover debt repayments of $267 million and dividend distributions of $264 million. BD has generated almost $3.5 billion of free cash flow over the last four quarters, which should enable it to meet its debt obligations and continue to fund its dividend. Speaking of which, BD raised its dividend by 5.1% for the Dec. 31, 2020 payment date, which is much higher the three prior annual raises. The company has now increased its dividend for 49 years.
The company provided updated guidance for fiscal year 2021. BD expects revenue to grow 12% to 14%, up from prior guidance of a high single-digit to low double-digit increase. Adjusted earnings per share are now projected in a range of $12.75 to $12.85, up from $12.40 to $12.60 previously. Achieving the midpoint of update guidance would result in 25.6% growth from the prior fiscal year.
Using the current share price of $247 and the midpoint of updated guidance, BD trades with a forward price-earnings ratio of 19.3. The current valuation is a slight discount to the stock's five-year average price-earnings ratio of 19.8.
GuruFocus believes shares are trading below their intrinsic value.
With a GF Value of $259.48, BD has a price-to-GF Value of 0.95. Reaching the GF Value would result in 5% gain from current levels. Adding in the dividend yield, the total return begins to approach the high single-digit range.
The potential return may not appear all the enticing to investors looking for growth, but BD benefited greatly from Covid-19-related tailwinds in the most recent quarter. Based on the company's revised guidance, it appears leadership expects this trend to continue for the remainder of the year. Testing for Covid-19 is ongoing and the vaccine rollout has only just begun, giving BD a lengthy runway for growth.
And it's not like BD is a one-trick pony. Even without the Covid products, revenue was still higher by a mid-single-digit percentage. Results were higher in nearly every business within the company.
Add in nearly five decades of dividend growth and a solid balance sheet to a strong business aided by Covid-19 tailwinds and BD should be considered an enticing investment option at the current price.
Disclosure: The author has no position in any stocks mentioned in this article.
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