Becton Dickinson Positioned For Top-, Bottom-Line Outperformance, JPMorgan Says In Upgrade

Becton Dickinson and Co BDX shares deserve to trade at a premium multiple to medical technology peers — even after accounting for the company's leverage — given the strength of its outlook over the next two to three years, according to JPMorgan. 

The Analyst

Analyst Robbie Marcus upgraded Becton Dickinson from Neutral to Overweight and raised the price target from $250 to a December 2019 target of $275. 

The Thesis

With Bard being assimilated into Becton Dickinson for about two quarters now, the latter is likely to outperform the Street's top- and bottom-line expectations for the second half of 2018 as well as fiscal 2019, Marcus said in a Thursday note.

This will set up a "beat-and raise scenario" well into fiscal 2019, the analyst said. 

The bullish thesis is built on three factors, Marcus said: 

• Exceeding the synergy target from the Bard acquisition over time.
• Becton Dickinson will benefit from neutral pricing, with upside opportunity being found in more aggressive price capture.
• The leveraging of the company's portfolio to secure multiple small wins, rather than relying one or two blockbuster launches.

JPMorgan forecast pro forma organic growth of 5 percent — a conservative target that provides leeway for outperformance, Marcus said. 

EPS growth is likely to be in the low double digits at a minimum in the foreseeable future, and Becton Dickinson is also likely to see over 90 percent free cash flow conversion, the analyst said. 

Taking into account the early rounds of synergy, Marcus projects a 280-basis point operating margin expansion in fiscal 2018 that results in cash earnings per share of $10.99.

The Bard deal is key to the Becton story going forward, Marcus said, and the analyst sees upside to the synergy targets for the acquisition as well as accretion targets tied to tax synergies. 

The Price Action

Becton Dickinson shares were up 1.33 percent at the time of publication Thursday.

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