Tuesday, May 17, 2011

Becton Dickinson: Another Undervalued Stock on the Move

As I promised last time, I am showing our Dividend Valuation Model for Becton Dickinson (BDX).  BDX is the second highest ranked stock in our universe behind United Technologies (UTX) in a combination of predictability, valuation, and momentum.

The chart at the right shows the actual prices of BDX in red compared to our model's annual predictions over the last 20 years in blue.

BDX is a global medical technology company engaged in the manufacture and sale of a wide range of medical devices and instruments used by many sectors of the health-care industry. 

The Dividend Valuation Chart shows a tight fit between BDX and the valuation bars.  The R-squared is .94. 

BDX has one of the best long-term earnings and dividend growth records of any company we follow.
  1. Dividends have grown by nearly 13% per annum over the last 20 years. 
  2. Earnings have grown by nearly 12% per year.
  3. Over the last three years dividends and earnings have grown at 13.7% and 11.4%, respectively.
  4. Wall Street is estimating that 3-5 year earnings will grow at nearly 10%.
  5. The model is suggesting that based on next years estimates the stock is undervalued by nearly 14%.
A company with such a high R-squared at BDX seldom gives table-pounding buy signals.  The chart clearly shows that BDX's price has pretty much run along the tops of it annual valuation bars, but it is now buried in undervalued territory.

Health-care stocks have underperformed the S&P 500 over the last two years.  In recent weeks, however, they have perked up as investors have moved to a more defensive posture.  We would not be surprised to see BDX move higher in part because it has one of the highest expected dividend and earnings growth profiles of any stock in the health-care sector.  In short it is a standout company in a battered industry.

We own BDX in our Capital Builder investment style. Do not use this blog for investment advice.  Please consult your own investment professional for his or her analysis of the company.

Next time Johnson and Johnson (JNJ).