Over the last six months, BD’s shares have sunk to $160.20, producing a disappointing 14.6% loss while the S&P 500 was flat. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy BD, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is BD Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why BDX doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, BD’s sales grew at a mediocre 4.1% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect BD’s revenue to drop by 12%, a decrease from its 4.1% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
BD historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.3%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.
Final Judgment
BD isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 12.4× forward P/E (or $160.20 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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