BDX security Analysis

BDX Equity Analysis
Yanira Garcia
2015
Yanira Garcia
BectonDickinson&Company

Executive Summary
Sell – My final recommendation for Becton
Dickinson & Company is for investors to sell
the stock, as this company and industry are
going to experience turbulent times soon.
The signs that lead me to believe this are:
I. Decreasing Margin
II. Increasing buyer power
III. Increasing R&D cost
Within their industry, Becton Dickinson
comes in at number 5 based on revenue.
Regardless of their high standing, one main
reason for selling is the decreasing margins.
One should be ware when investing not
only in BDX but this industry as a whole
because this seems to be an issue across
the board. While sales are expected to grow
at a high rate for a few years due to baby
boomers aging, these sales should be offset
by increasing R&D cost. Thus the margins
should continue to decline as they have in
the past especially since buyer power is
expected to increase as well in the near
future.
BDX valuation
As I continued my analysis I found that BDX
is overvalued relative to the firm and fairly
valued for the most part relative to their
industry. For this analysis we focused on
many ratios including P/E, EV/S, P/B and
P/CF. Figure 49 contains a summarization of
all the ratio valuations and how BDX stood
next to the entire market as well as to their
corresponding industry the S&P North
American Health Care Equipment (S5HCEP).
According to this analysis you should sell
when compared to the market and hold
relative to their industry. The fact that BDX
is fairly valued relative to their industry
leads me to believe that this industry as a
whole is overvalued when compared to the
entire market. So this
Relative Value
Market Industry
P/E Over Valued Fair Valued
EV/S Over Valued Overvalued
P/B Over Valued Fair valued
P/CF Over Valued Fair valued
To verify my thoughts on BDX being over
valued I completed an analysis which tells
me what BDX’s is actually valued. I
completed a best worse and base case
scenery. As we can see in Figure 40, even
the best case scenario was barely 18%
above the current price while our base case
is over 36% below our current price.
Current = $148.68 Best Base Worst
Dividend Discount Model $120 $70.15 $48.10
Cap Earnings Model $63.82 $59.72 $54.59
H model $211.91 $107.08 $64.63
Average price $175.91 $94.44 $60.64
Upside/base/downside 18.31% -36.48% -59.21%
Figure 49
Figure
40

A third indicator of selling this stock was
provided through a regression analysis. I
used BDX’s main competitors in the index
S&P North American Health Care
Equipment (S5HCEP) which resulted with
Figure 51. As we can see in this graph, BDX
is slightly above the linear barrier
separating the rich stocks from the cheap.
This graph also allowed us to see that BDX
is not the best investment within our
industry and that there are companies
trading cheaply within this same industry
that may be a better investment.
Lastly in order to get a fourth and final
indicator of sell recommendation I decided
to take a technical analysis approach. As
you can see in figure 54, BDX has surpassed
the RSI limit of 70 a few times within the
last year, meaning that it has been over
traded. As we get closer to present times
we see that BDX recently surpassed the 70
benchmark once again in November and
has maintained at a high level signaling a
sell recommendation as well.
All analysis point to BDX being over valued
and signal a strong sell recommendation
despite the revenue growth forecasted
BDX
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3
4
5
6
4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 10
Chart TitleBDX fairly valued within the
CHEAP
RICH
Figure 51
Figure 54

Industry Analysis
The health care equipment and supplies
industry is very large and contains multiple
segments. For the purpose of this analysis
we will focus solely on medical equipment
segment.
The Federal Food, Drug, and Cosmetic Act
of 1938 defines any medical device as “an
instrument, apparatus, implement,
machine, contrivance, implant, in vitro
reagent or other similar article that is
intended for use in the diagnosis of disease
or other conditions or in the cure,
mitigation, treatment, or prevention of
disease.”
Big Players
After some financial analysis I found that
the biggest competitors within this industry
based on revenue are the following (ranked
in order):
Company Revenues 2014 (million)
While these numbers do look decent, how
has market share changed over time? Well
if you look at the graph below we can see
that the industry is certainly changing. It
appears to be that the largest firms are
slowly beginning to shrink as far as market
share and that all other firms are beginning
to take a large portion of market share
when combined and that all of these top 5
firms are slowly falling. This can be
attributed to studies that have confirmed
that small and midcap companies are the
driving force of innovation within this
industry.
As we can see in figure 1 the smaller firms
are beginning to grow and the bigger firms
are shrinking. Since the bigger players are
losing market share that means that buyer
power may increase due to the changes.
Buyer Power
Baby Boomers!
Studies have proven that there is a
correlation with age and frequency of
doctor frequencies. For this time that
means that we are in a great time period to
be medical equipment manufactures. The
reason being is because Baby Boomers are
now reaching the threshold in which doctor
visits become more frequent and they begin
to need more medical equipment.
1. AbbottLabs $20247
2. Medtronic $17005
3. BaxterInt. Inc. $16671
4. StrykerCorp. $9675
5. BectonDickinson $8446
Market Share changes from 2005-2014 based on sales Revenue
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ABT MDT BAX SYK BDX Others
Figure 1

According to the Census Bureau the 20
century is going to show amazing growth in
the elderly population (65+ years) Figure 2.
The first wave of baby boomers is expected
to reach the age of 65 in 2011 and by 2030
this population will have doubled from the
current normal range of 35 million to 72
million.
The rapidness of this age population growth
is illustrated below. As you can see in figure
3 there is very rapid growth from 2010
through 2030. After this time period it is
apparent below that the growth rate will
decrease.
Since elderly people are key consumers of
products, that means that change is on the
way. This means that demand is going to
increase. Not only that but we can expect
companies to get more competitive for
innovations in the industry in order to gain
these customers.
GPO
One big disadvantage for manufacturers is
the creation of GPOs. These are
organizations that combine orders of small
businesses into one large order. Some of
the biggest and best known GPOs are
Amerinet, Med Asset.
These organizations bring a lot of power to
smaller business, because they bigger the
order, the better the deal they receive on
the merchandise. In 2013 business who
purchased through organizations such as
these received in sum a total discount of
over 1 billion.
As the example above demonstrates, these
organizations provide much more buyer
power for businesses that do decide to go
through a GPO.
Awareness
Customers are becoming a lot more
knowledgeable about products and prices.
This is mainly due to information provided
by new e-procurement systems. This is thus
leading for more cost friendly products and
competition to maintain customers. We
have seen in the past that customers are
more cost conscious. This was greatly
demonstrated during the recession that
took place back in the 2000s. During this
time we saw a decrease in income derived
from disposable equipment and supplies.
Overall Rating: High
0. 5. 10. 15. 20.
2013
2012
2011
2010
2009
2000
Percentage of U.S. population
Y
e
a
r
Percentage of US population with hospitalization in
past years by agegroup
65 years and over
45-64 years
18-44 years
Figure 2
Figure 3

Supplier Power
HIPPA
One big concern that has come up recently
within this industry is HIPPA. Medical
companies are having trouble keeping
patient information confidential due to
numerous events of hacking taking place in
the industry.
This hacking issue is a major concern
because it can lead to identity theft of the
patients.
The only solution that manufacturers can
find is to make sure that they have reliable
and safe suppliers and business partners.
This will increase patient safety and privacy.
This thus increases supplier power and
reduces the manufacture’s power.
Reputation Effects
Since there are multiple raw material
suppliers, it can get kind of hard to compete
for customers. But being the fact that they
are dealing with medical industry makes it a
lot tougher and suppliers must differentiate
their product from the rest. The way that
they do this is through reputation.
The medical supplies industry is heavily
regulated for patient safety. For this very
reason manufacturers prefer to go with
suppliers who have good reputations about
safety and cleanliness of their product.
The advantage of good reputation gives
these suppliers the upper hand on price
negotiation since manufacturers are willing
to pay higher price for quality.
While manufacturers do have many options
when it comes to suppliers, quality limits
their options. This therefore raises supplier
power from low to moderate.
Overall Rating: Moderate
Threat of Substitution
As of now this does not seemto be a big
concern to this industry. There is nothing
that really seems to even come close to be
considered a substitution, but that may
change with time as the technological and
medical industry continues to revolutionize.
Overall Rating: Low
Threat of New Entrants
Evolution
Research and development is key in this
industry. Whether it be to create new
products or to improve on existing ones. If a
firm wants to stay competitive it must
invest in their R&D department.
Since R&D is constantly leading to
innovations and different products,
meaning that the technology in the industry
is always evolving as well. This makes it
difficult for new aspiring competitors to
enter the industry.
Not only is it difficult for them to stay up to
date with the technology as far as
knowledge and experience wise, but also
financially. A incoming competitor has to
focus its investments in the research
department in order to set it aside from the
current industry. Thus the constant
technological advancements can end up
being costly to a firm that truly needs to
focus solely on R&D. Technology is not the
only huge factor here, but regulation is very
heavy on this industry as well.
Drive out

As stated earlier this industry is dominated
by large international companies. This
means that they have the ability to drive
down their prices in order to beat out the
new entrants who do not have the ability to
compete with these prices.
ACA
The affordable act plays a big role for new
entrants. It is a force that discourages many
from even attempting to enter the market.
ACA places a 2.3% tax on total sales of
taxable medical devices. This high tax has
already affected the big players, and is a
huge disadvantage for new entrants.
Coming into a market you want to attempt
to gain some sort of market share. The
affordable care act makes this even harder
within this industry because it increases
cost, thus affecting overall profitability.
FDA
The FDA is another hurdle which new
entrants must face. There is a very long and
expensive process in place by the FDA in
order to be able to market an item to the
public. The process flows in the following
direction:
1. Pre-sub:
Clinical trials are very expensive and be a
complete waste of time and money if not
passed. These are done to assure that
materials and devices are safe for
consumers
2. IDE
This is the request sent to the FDA in order
to receive approval for clinical trials.
3. PMA :
This is the step in the process where the
company request market approval.
4. PMA-S:
This stage is to approve changes to existing,
approved devices.
This 3 stage process is not only long but
expensive and really takes a toll on
emerging companies.
Switching cost
Switching cost is surprisingly low. Not only
that, but suppliers are very accessible
making for an ideal environment for new
entrants.
Due to all of the fees and regulations as well
as all other issues discussed in this section, I
would consider the overall threat of entry
as:
Overall Rating: Low
Rivalry
Diversity
While all forces of porter are very
important, rivalry is a key force. If rivalry is
fierce then the structure of the firm can be
affected.
The good thing about this industry is that it
is composed of many large scale
international companies. This means that
many of these companies are very
diversified in products and operate in many
different industries. Due to the diversity
these companies can actually negotiate on
price of products offered.

The diversity of the larger scale companies
and the different sources makes for little to
moderate rivalry within the industry.
Expansion
As stated in the overview of the industry,
there are many big international
competitors. Their constant R&D is always
leading to improvements and allows firms
to expand geographically. Not only that but
it allows these expanding competitors to
even tap into emerging markets all over the
globe.
Overall Rating: Moderate
Issues:
ACA
The affordable care act was signed into law
back in March 2010. This law was designed
to help American’s all have access to
medical insurance. A portion of being able
to do this is the tax that was placed on
manufactures of the medical equipment
and supplies industry.
The affordable care act placed a 2.3% tax on
medical equipment & supplies
manufacturers. This has lead for the
subindustries to align their cost structure to
help offset the tax impact. Along with that
Net Advantage said companies could make
tax manageable because the levy is tax
deductible.
A lot of companies have appear to have
taken a different path when attempting to
lower the impact of the tax. One of the very
negative budget cuts that we saw was that
from the Research and Development
department.
This budget cut really effects the industry,
because in order to meet increasing
demands, innovations need to happen.
Cutting the research and development
budgets for companies, does not help
develop innovations.
Smaller companies are the ones that have
shown to be most affected by the
Affordable Care Act. One key thing for these
companies is the opportunity to innovate
and to try to rise and grow but this
additional tax is reducing their
opportunities just as all other companies
within this industry.
A study conducted by Avamed showed that
10% of companies have moved
manufacturing operations out of the US.
This in turn has caused for 14,000 jobs to be
eliminated.
The most devastating result from the
research conducted showed that the
majority of new enrollees will be younger
and less likely to need medical devices. This
means that there is not really any benefit
for companies and there is a higher risk of
this causing them to lose money in the long
run.
Middle Man
One big issue within this industry is the use
of a middle man. The customers for these
firms are other businesses: hospitals,
nursing homes, acute care facilities, etc. The
problem comes in because they are not the
actual consumer of the product. Instead
they are simply the middle man.
This is an issue because without realizing it
these middle men are actually a reflection
of the industry, but much more of the used
manufacturer. If the provider has trouble
with the product, the patient may think that

the product is terrible and defective when
in reality the provider simply needs training
upon the product.
Another example can be when other
patients misuse the products as well.
Unfortunately, there are some patients that
reuse needles even though they are told
not to do so. Sometimes because of this,
they obtain an infection and can attempt to
blame the manufacturer. This can greatly
affect the manufacturer. Even though their
product is great, the patient will state other
wise to those around him which can cost
sales for the manufacturer.
Economic Change PPI
The Producer Price Index (PPI) Figure 4,
gives us insight on the producer side of
inflation. The PPI measures the average
range of selling prices that producers
receive for their products over a span of
time.
At the beginning of this section, we have a
graph comparing the PPI from the medical
equipment industry to the entire
manufacturing industry. As we can see both
show very different trends. While the
Overall manufacturing PPI shows a lot of
volatility over the years, the medical
industry PPI does not.
The medical industry PPI appears to be very
stable but steadily growing. Another major
concern is that the PPI reported for each of
these seems to be drastically different from
one another. This may also be due to what
exactly the Bureau of Labor Statistics
includes in this analysis. If it is
manufacturing goods that are a lot more
expensive then the medical equipment,
then of course we can expect this drastic
gap.
Now as I stated earlier, the medical
equipment and supplies trend seems to be
very stable which is great for investors. We
also see it is steadily increasing and when it
does fall, it does so just slightly. So we can
be assured there are no crazy jumps such as
in the total manufacturing industry, making
for a safer investment.
We can predict that these trends will
continue and that we will continue to see a
growth in PPI and we can be assured that it
is a lot safer than other manufacturing
industries as demonstrated from our graph.
Over View
As you can see all throughout the analysis
there is a constant push and pull effect
going on. Every time we find a good
attribute to this industry we find a bad one
as well.
The key to this industry is safety. If safety
and quality decrease within this industry
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ProducrePriceindex
month &year
Producer Price Index for Medical Equipment and Supplies
manufacturingcompared to Total Manufacturing industry 2005-2014
Medical
Equipment &
supplies
Total
manufacturing
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Figure 4

then the firms will fail and can cause for the
entire industry structure to fail. The supplier
power that exist only does so because
manufactures have to assure the quality of
their products for patient safety.
One of the major issues with this industry is
the Affordable Care Act. This law has flipped
this industry. As seen earlier in this paper
there is not much rivalry for this industry
due to the diversity. But the affordable care
act increases rivalry in a sense, because the
new enrollees into the market are scarce.
That paired with cut research and
development budgets is certain to raise the
level of rivalry.
The last and final major concern with this
industry is branding and the middle man.
Providers fail to realize that their use of the
product reflects the overall company in the
customer’s eyes. If customer’s see a
product as unsafe they can potentially sway
the provider to switch manufacturer by
denying them their business if they do not.
Overall, all portions of the Porter analysis
seem to be in great shape. There is no red
flag on this industry. And it is a great signal
that there is absolutely no threat of
substitution.
Rivalry:
Moderate
Substitution Threat:
Low
Threat of New entrant:
Low
Buyerpower:
High
Supplierpower:
Moderate

Company Overview
Becton Dickinson is among the top 5
companies as shown in our earlier analysis
based on Sales Revenue.
Within its industry, Becton Dickinson is one
of the major competitors. Based on Market
Capitalization, BDX falls in at number 4 with
a market cap of $30,451 According to the
Russel 3000.
Market Share/ Competitive Standing
To determine market share, we will take a
look at revenues for the top 5 companies in
the industry. There are many small firms
within this industry that make up 82% of
the overall (Figure 5) industry as seen
below. BDX only makes up 2% of the
industry when analyzed by revenue.
To get a better idea of how BDX stands
among competitors we will look at the top 5
within the industry, which BDX does fall into
(Figure 6).
As we can see, Becton Dickinson does make
the top 5 companies within the industry but
is the smallest of the 5. This analysis was
done of revenue. In 2014 Becton Dickinson
brought in $8,446 while the top company,
Abbott Laboratories brought in $20,247. As
you can see there is a big gap between the
top company and Becton Dickinson a total
difference of $11,801.
What sets BDX aside from the competition
is their specialty in needles. BDX is
consistently innovating the needle in many
ways including length, width and safety. To
be more specific BDX is the top competitor
for diabetic needles. They specialize in
needles for diabetes care and providing
safety and comfort to the patients.
World Wide Presence
BD is not only a US company, but also has
different business entities all over the world
including:
5% 4%
4%
3%
2%
82%
BDX makes up mere 2% of entire
industry
Abbott Labs
Medtronics
Baxter
Stryker
Becton Dickinson
Others
Figure 5
28%
24%23%
13%
12%
BDX makes up 12% of total revenue for top 5
companies
Abbott Labs
Medtronics
Baxter
Stryker
Becton Dickinson
Figure 6

 North America
 Europe
 South America
 Middle East/ Africa
 Asia/ Pacific
As we can see above (Figure 7) the region
that produces the most revenue is that of
U.S market generating over 3.4 billion. As
noted at the bottom the “Other” is
composed of Latin America, Canada and
Japan. This is one of the benefits of a large
corporation, that it is not solely based in
one country and has the ability and
resources to expand to other regions.
BD Branches
Becton Dickinson like many of the
competitors in this industry is actually quite
diversified in the products that they offer.
In total they are composed of 3 different
sectors: BD Medical, BD Bioscience, BD
Diagnostics.
BD Medical
This is actually the largest portion of BD as a
whole as far as revenue goes. This portion
includes all medical items, ranging from
needles and syringes as well as catheters to
drug delivery systems. The biggest items for
this sector are syringes and needles as well
as sharps disposable containers. The
biggest customers for this sector of BD
include hospitals and clinics.
BD Bioscience
This section of the company is focused on
tools to help with research. More
specifically, they make tools to help with
the study of cells. They specialize at the cell
level so that they may understand disease
and prevention at a better level. The
information provided by these tools is then
used to help develop vaccines or treatment
drugs. Their main products include: cell
analysis kits, florescence activated cell
sorters and analyzers, cell imagining
systems and a few other products. The main
customers include research facilities as well
as government agencies.
BD Diagnostics
This BD branch is the second largest as far
as revenue is concerned. This area is
focused on collecting specimens and
samples and transporting them in a safe
manner. Not only that, but they also focus
on detecting a broad range of infectious
disease. Some of the products include:
automated blood cultivating systems,
integrated specimen collection systems as
well as plated media and other products.
Figure 7

The customers for this branch, range from
hospitals and clinics as well.
All Segments have different customers.
With this being said the most common for
each segment and the biggest customers
for BD are hospitals and clinics since they
buy in medical supplies in large quantities
more specifically disposable medical
supplies.
Below is the breakdown of Revenue (Figure
8) by segment from the 2014 annual report.
History
Becton Dickinson began with two
businessmen. Both Maxwell W. Becton and
Fairleigh S. Dickinson were on a business
trip when they first met in 1897. After a
long train trip they decided they wanted to
go into business together, thus creating
Becton, Dickinson and Company. Along side
1906 was a huge year for BD. It was in this
year that Becton Dickinson took a huge step
and became incorporated in New Jersey.
Not only this, but they opened up a
manufacturing facility, which became the
first built specifically for producing
thermometers, hypodermic needles and
syringes.
In 1924 BD made its first syringe designed
specifically for diabetes care, which set the
pace for its dominance in this specific field.
In 1948 the sons of the founders took over
the company and expanded BD worldwide.
Along with that they began the research to
transition into disposable products which
eventually took place in 1950. In 1962 BD
finally became a publically held corporation
beginning. It’s first shares were priced at
$25 a share.
1972 was another major year in that it was
the first time that the Fortune Magazine
listed BD as one of the 500 largest American
Companies. In 2005 they were also
recognized and included into the Dow Jones
Sustainability Index North America.
These are just a few of the major
milestones that the company has
accomplished.
Management
I will cover the most important (in my
opinion) corporate officers for BDX.
CEO : VincentA.Forlenza
He also holds the position of President and
Chairman. He has worked with BDX for over
Figure 8

30 years and has worked in many areas
including marketing, has worked in oversea
roles, and general management roles in all
3 segments and many other roles within the
company.
CFO: ChristopherR.Reidy
He is the executive of management and
oversees BDX global financial operations as
well as shared services. He comes to BDX
with much experience having been CFO for
ADP NBA properties, and many other
companies. They believe that with his
experience and BDX strategies, the
company can maintainitscompetitive
advantage forthe future.
Global Strategy Development:AmitaBhalla
Amitaworksalongside JohnEGallagher
(BusinessPlanning&analysis& treasurer) to
developexpansionplanssuchaswhere to
locate newplantsif needsornewservice
centersor differentthingsof the nature relating
to expandingintodifferentareasof the world.
Research & Developmentand ChiefMedical
Officer:EllenR.Strahlman,M.D
ResearchandDevelopmentisamajor factorof
thisindustry,whichiswhyIwantedto mention
EllenR. Strahlman.Withoutherguidance and
leadershipBDXcanplummetinperformance if
R&D fails.
ChiefEthics and Compliance Officer: Patti E.
Russell
Mrs. Russell holdsaveryimportantposition.
Anothermajorissue inthisindustryissafety
alongwithethicssince we are dealingwiththe
medical industry.If we fail inthisdepartment,it
can be the endof BDX.
EverypositionwithinBDXplaysanimportant
role butI findthatthese are the positionsthat
exceedothersandthatas a companytheyneed
to assure are completingtheirdutiestothe best
of theirabilities.
Strategies
CEO Vincent Forlenza, describes the medical
field as fast paced and constantly changing.
Do to this he has put together many
strategies that combined should help BD
flourish and prosper and adapting quickly
even during uncertain futures. Below I will
talk about these strategies.
One step that has been taken is the use of
Research and Development funding. For the
most part BD has historically used this
funding to extend product lines. Now, they
are focusing on building complete new
products using both internal and external
creative sources.
Along with that BD is building partnerships
with many other people. Doing this gives BD
the access to some of the world’s best
technology, science and entrepreneurs. He
says that the overall goes is to “create a
portfolio of partnerships comprised of small
financial investments with opportunities for
deep, hands-on engagement and strategic
exploration.”
Lastly the major portion of BD evolution is
the use of acquisitions. They plan on using
acquisitions to their full advantage,

meaning not only for geographical
expansion, but also for product innovation.
They believe that these combined along
with other smaller strategies will take BD
into the future. And potentially make it a
top leader within the industry for years to
come.
SWOT Analysis
Strengths
The expertise of Becton Dickinson is
focused on injection, therefore needles.
They started with glass syringes and now
are the creators of the world’s smallest pen
needle. Another area in which they lead the
market in is that of infusion based drug
delivery. Both of these factors combined
give the company a competitive edge on
the market.
Acquisitions are something that Becton
Dickson has taken advantage of. They have
acquired companies that help maintain the
competitive advantage discussed above.
A major advantage held by Becton
Dickinson is the fact that they are a global
company. Many of the companies within
this industry are fairly smaller and therefore
don’t have the capital and other resources
to expand overseas. This creates less
dependency risk for BD which of course is a
major strength.
Now one big advantage that separates BD
from its competitors is its financial
flexibility. BD is hardly ever in debt and is
very good about keeping cash on hand at all
times.
Weakness
BD has taken on a lot of debt due to current
acquisitions. Thus weakening its strength
mentioned above. For the first time in many
years BD had to take out a loan in order to
be able to pay for an acquisition and that
was the one pertaining to CareFusion.
Another weakness for BD is a common issue
addressed earlier for all firm’s within this
industry and that is brand imaging. Any
recall or misuse reflects the brand BD,
which of course can affect sales overall.
Opportunities
BD’s opportunities all stem from different
acquisitions. Example, the recent
acquisition of Carefusion provides the
opportunity for BD to become a leading
company in both medication management
and patient safety solutions.
Acquisitions of CRISIS medical Systems gave
way for BD to tap into another market; the
injection safety. These are simply two of the
bigger acquisitions that will have the
biggest impact on BD.
Threats
The ACA was a major threat to many
companies within this same industry, but
BD has prevailed. Now the pressing threat is
that of a healthcare reform. A healthcare
reform can have a very negative impact and

lead to a decrease in demands for their
products.
Of course another threat is one of the five
forces examined in Porter’s analysis. That
threat is the threat of rivalry. This can affect
BD just as it would affect any company
within this industry by forcing it to drive
down prices and lead to lower profits.
The last threat that can be perceived is one
that every business faces. That is the threat
of prices changes in supplies and raw
materials. These can affect profit margins as
well. And lead to less funding for R&D and
can lead to a downfall within this industry.
Thoughts on BD
Overall, the company appears to have a
good outlook on it. From past reports we
see that their revenues are consistently
growing and that growth is expected in
years to come.
CEO Vincent Florenza also does have many
ideas to keep the company in a competitive
position within the industry not only now
but in the future. It seems to be a well
thought out strategy that will bring BD into
the future. One major component that I
believe will be the key, is the use of funding
for new products instead of line extensions.
The only caution that I can see with this
company is the volume of acquisitions.
While acquisitions are very common within
this industry I just suggest that BD keep the
acquisitions to companies that they can
truly benefit from.
Not only should they be more conscious
about whom they acquire but how they
acquire them. The transition process for BD
is not as clear and leaves a lot of
unanswered questions. So BD can
potentially have a great buy but if they
cannot successfully merge, then it can have
a disastrous impact.

Financial Analysis
In this paper I will perform a financial analysis
of Becton Dickinson based on the financial
data provided by Bloomberg. I will start by
assessing Becton Dickinson’s short term
viability, looking at key measures of liquidity
and solvency. I will then turn my attention to
Becton Dickinson’s long term prospects for
growth. This will be done by, looking at key
measures of top line growth (turnover) and
bottom line growth (margin).
First, looking at the short term viability of
Becton Dickinson staring with liquidity, I
believe there are four important points that
can be made from the financial data:
1. Becton Dickinson’s cash from operations
(Figure 9) has been growing at a slow pace of
5.01% (CAGR since 2007) while its Earnings before
Interest and Taxes (EBIT) is growing only 3.68%.
Generally it is a good sign that CFO is growing
faster than EBIT, pointing to evidence that
earnings are “economic” (that is, not propped up
by accounting accruals). So I see this as a good
sign for both liquidity and quality of earnings the
concern is that these growth rates are so low.
When compared to the competition ABT
Laboratories, BDX actually has much higher
growth rates since the competitor’s CFO and EBIT
actually have an overall negative growth rate.
2. At points in time there are differences in
the trends for CFO and EBIT, especially occurring
in 2013 (see graph 1) This raises questions about
what possibly happened in 2013 to cause this
major fluctuation. In further analysis we took a
look at the Net Working Capital Requirement, one
can see that in 2013 Working Capital Assets rose
slightly as in previous years while Working Capital
Liabilities grew at a much faster rate. Analyzing
the information as a whole we see that overall
Working Capital Liabilities is growing at a higher
rate of 6.92% while working capital assets are only
growing at 4.66%. This is causing the Networking
Capital Requirement to fall and thus cause, Cash
from Operations to fall while EBIT rose. After
additional research the only thing that found to
explain this is the fact that the company
underwent a systemchange. They switched their
software for financial reporting. This is the only
major difference seen in the annual report which
can lead to the increased Working capital
Liabilities.
3. Looking more closely at the Net Working
Capital Requirement, we see that Working Capital
Assets are greater than Working Capital Liabilities,
500
1,000
1,500
2,000
2007 2008 2009 2010 2011 2012 2013 2014
EBIT and Cash from Ops show positive signs for
liquidity and quality of earnings
Earnings before Int and Taxes
Cash from Operations
Figure 9

which means that the Net Working Capital
Requirement is a use of cash rather than a source
of cash. This is the normal situation for most
companies, so the more important question
related to liquidity is, what is the trend in the Net
Working Capital Requirement? What does catch
my attention is that Net Working Capital
Requirement is only growing by 1.87%, a much
slower growth rate than Revenues, EBIT and Net
Income. I should point out that this may also be
distorted by the increase in Net Working Capital
Liabilities discussed in #2 above.
4. Looking at Return on Common Equity
(Figure 10), we see that Becton Dickinson
has been consistently paying out to share
holders. Along with always paying out, the
amounts have increased over
time as well showing the growth. Now one
major year of concern is the year of 2014.
There was a decrease of 17% on the ROCE.
This is a major downfall and major concern
because this averaged out with every other
year shows that over time this is just an
average growth of 1%.
Next, looking at Becton Dickinson’s
solvency, I believe there are three
important points that can be made from the
data:
1. First, looking at Times Interest
Earned, we see Becton Dickinson reached a
really high ratio in 2009 reaching 41.68.
While this is great that they have the ability
to pay interest charges this many times it
does raise concerns as to why they are not
using this money for other things such as
developments. Since then the ratio has
been declining to the most current 10.11 in
2014. As of now this ratio does not raise
any concerns about Becton Dickinson’s
insolvency but if it continues to take such
dramatic plunges as in previous years then
it can raise some major concerns.
2. Second, looking at Becton
Dickinson’s Debt-to-Equity (Figure 11), we
see the ratio began to rise rapidly in 2011
going from .31 in 2010 to .56 in 2011. 2012
was a significant year because it almost
doubled to 1.01. Debt has been growing at
19.17%, which is faster than their growth in
earnings and assets.
(20.00)
(10.00)
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40.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ReturnonCE
Year
ROE consistantly growing up till 2014 bringing overall
average down.
Median 10 Percentile 90 Percentile Becton Dickinson
Figure 10

We also see in 2012 that there was a major
repurchase of stock, but we also see an increase
in debt. This means that while BDX was able to
repurchase stock it did so by taking on more
debt. The debt to Equity ratio has fallen since to
.70 but is still considerably high when compared
to previous years prior to 2012. We need to
watch this trend to see if their debt to equity
ratio balances out. We should also be aware of
any strategies expressed by management to
handle the growth in debt. Further, we can see
that Becton Dickinson’s debt to Equity ratio is
significantly higher than Abbott Laboratories who
is a major competitor for BDX.
3. Third, Becton Dickinson’s Combined
Financial Leverage showed a slight increase in
2012. Since the ratio has since declined, there
are no red flags. Also since this ratio includes all
liabilities, the increases in debt may be possibly
be offset somewhat by the decrease in Working
capital Liabilities account in2012. But we see
that this event in 2012 did indeed put Becton
Dickinson above Abbott Laboratories (Figure 12)
when it comes to combined financial Leverage.
They have since come down but are still above
ABT. This requires further research as not
enough details are provided here.
4. Fourth, BD’s Debt to EBITDA ratio.
This ratio gives us an insight to the
likelihood of the firm being able to repay its
depth. As we see in Figure 13 below,
Becton Dickinson follows the industry
median. This is great because it means that
BD is not seen as incapable of paying its
debt off. As we can see the lower 10th
percent of the industry is quit alarming
when it comes to this ratio. When
measuring Debt to EBITDA, the higher the
ratio, the worse. The top 10% of the
industry has an extremely low ratio when
compared to the lower 10%.
0.00
20.00
40.00
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120.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
TotalDebttoEquity
Year
Debt to Equity raises red flag on debt growth
Figure 11
0.00
0.50
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2.50
3.00
2007 2008 2009 2010 2011 2012 2013 2014
BDX recently surpasses ABT in Combined
Financial Leverage Raises debt concerns
Becton Dickinson Abbott Lab.
Figure 12

Now one very interesting points to make is that
it appears the BDX appears to follow the
complete opposite behavior when compared to
the market.
If you look at graph 5 you can see that while
the rest of the industry is either rising or falling
BDX does the complete opposite. Example, look
at 2010. All other portions of the industry rose,
while BDX actually fell. This may be due to the
fact the BDX is known for carrying larger
amounts of cash thus leading to fewer loans
during a crucial time period.
Credit Rating
To obtain second outlook on the company I
researched the company a little more on
Bloomberg and found that Becton Dickinson’s
credit rating was scored at a BBB+ by both
Standard & Poor’s as well as the Egan Jones
Rating Company. Moody’s ranked them in at
Baa2. All of these ratings seems to indicate that
Becton Dickinson is a lower medium grade
investment, thus reinforcing my speculations
about their stability.
My final conclusion on Becton Dickinson’s short
term viability is that I do see some possible
areas of concern. There is a lot of volatility for
its ratios and does not seem to be consistent
within the past few years. The one trend to
watch is the growth in debt, as debt has been
growing faster than revenue and earnings.
However, debt is not at a level at this point to
raise serious solvency concerns for Becton
Dickinson. We just need to keep a watch ratios
concerning debt such as debt to equity as well as
Net Capital Liabilities.
Now I will turn my attention to Becton
Dickinson’s long term prospects for growth,
starting with an assessment of Becton
Dickinson’s top line growth (also known as
turnover). There are 3 points I want to make
here based on the data provided:
1. Revenue growth has been positive but
not great. We do see a fall in revenue from 2008
to 2009, most likely attributed to the financial
crisis of 2008. Overall Revenues have grown an
overall 4.14% from 2007 to 2014.
2. Important with any business is to
assess where this growth is coming from.
Looking at Becton Dickinson’s growth in
terms of revenue per square foot is not
possible so the best way to asses them is in
terms of property plant and Equipment.
When analyzing Becton Dickinson’s records
we find that Revenue per PP&E ( property
plant and Equipment) actually decreased
but the PP&E ratio itself is the one raising
the revenues. What this means is that the
growth in revenue is more than likely
coming from Becton Dickinson opening up
another plant. What is bad news though is
0
1
2
3
4
5
6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
DebttoEBITDAratio
Year
BDX in good standingof Debt to Ebitda
Median 10 Percentile
90 Percentile Becton Dickinson
Figure 13

the fact that opening up this new plant
appears to have actually brought down the
revenue per PP&E, which means that it is
very likely that this additional plant was
unnecessary.
3 .Becton Dickinson’s Asset Turnover
(Figure 14) has been slipping the past
couple of years. While this is a concern, it
does not raise any red flags, because as we
can see this trend is followed by the entire
industry not solely BDX. It is somewhat
comforting to know that they are right in
line with the top 10% of the industry in
Asset Turnover.
If we continue to analysis the data it
becomes apparent that over the years the
gap between the top 10% and the lower
10% was widening, but since 2010, that gap
has begun to shrink. The top 10% Asset
Turnover is falling, while the lower 10% is
experiencing the opposite and is on the rise.
Another major ratio for this industry is that of
Inventory turnover. I wanted to analysis how
long inventory is in storage before getting it out
to customers and how Becton Dickinson
compared to competition. To my surprise
Becton Dickinson is actually doing really great in
this ratio (Figure 15) and keeping up with the
top 10% of the industry as shown below. This
boosts my perception on their ability to
generate sales even though it has been falling.
This signals to me that this is an industry
problem and not only being experienced by
Becton Dickinson.
Now I will turn my attention to Becton
Dickinson’s long term prospects for growth
by looking at margin. Here I want to make 3
points:
1. Looking at Gross Margin (Figure 16), we
see that there is volatility and not
consistently growing or falling. But we also
see that gross margin hit an all-time low in
2014 coming in at 50.9%. This is concerning
being the fact that it is even lower than it
was during the financial crisis in 2008 where
the gross margin came in at 51.2%. Overall
the gross margin comes in at -.22% which
means that the declines are overpowering
the increases in gross margin.
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
AssetTurnover
Year
Asset Turnover falls for entire industry besides
lower 10%
Figure 14
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4.00
4.50
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
InventoryTurnover
Year
BDX doing a great job keeping up withtop 10 %
of industry in inventory turn over
Median 10 Percentile
90 Percentile Becton Dickinson
Figure

As we see AbbottLaboratoriesisdoing better
than BDX inthisratio.Not significantlybetter
but it is important to note that their gross
margin is falling at a -.33% rate and are still
above BDX. Even though ABT still has a
higher percentage it is apparent that the
gap between both companies is closing.
2. Becton Dickinson’s Net Margin
continues to raise concern as we see that it
has been deteriorating since 2011 (Figure
17). It reached an all-time high in 2010 at
25.14% and has consistently fallen to the
most recent recording of 20% in 2014.
Showing an overall growth of -.44%.
3. Becton Dickinson’s overall Return on Equity, as
shown in Graph 10, has consistently been above
Abbott Laboratories since 2010. This is impressive
because the difference in ROE is significantly larger
than the small differences in combined leverage
(Figure 18). This points to signs of that such high ROE
is due to good management of turnover and margin
and is not exaggerated line growth.
To summarize long term growth prospects
(Asset Turnover and Margin), I believe
Becton Dickinson has done a very good job
keeping up with top competition as far as
asset turnover. Even though they are
getting close to closing the gross margin gap
seen in graph 8, it is not much due to their
performance but the fall in the
competition’s performance. Looking at ATO
Times Net Margin in Figure 19, we can see
that Becton Dickinson is still stronger on
this view of combined growth (top line and
bottom line), but because of the
deterioration on Net Margin, ABT looks like
they will begin to close the gap in the near
future.
45.0%
50.0%
55.0%
60.0%
65.0%
2007 2008 2009 2010 2011 2012 2013 2014
GrossMargin%
Year
Gross margingap closing between BDX and ABT
BDX ABT
Figure 16
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2007 2008 2009 2010 2011 2012 2013 2014
NetMargin%
Year
Net margin deterioration raises concern
Figure 17
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2007 2008 2009 2010 2011 2012 2013 2014
ROE%
Year
BDX outperforms competition on ROE
Figure 18

My biggest concern for Becton Dickinson is
the fall in the Net margin. That combined
with the increase in Net Operating
Liabilities raise major concerns for me. They
seem to be able to keep up with their debt
thus far but seeing how the net margin is
declining it’s a question of how long they
can continue to sustain their debt. They
need to work on increasing their net margin
as ABT appears to be doing and continue to
try and decline their debt levels. I was very
surprised to learn that BDX has such levels
of debt due to the fact that the company
prides itself on holding large amount of
cash at a time and according to them
holding little debt as possible.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2007 2008 2009 2010 2011 2012 2013 2014
ATOtimeNetMargin%
Year
BDX outperformingABT in ATO times Net
Margin for now
Figure 19

Forecasting
As stated earlier in my macro analysis we
see that baby boomers are expected to
have a major effect on the medical devices
and supplies industry. A very small portion
of this population is expected to reach the
65+ age group within the next 5 years. Most
companies within this industry are
preparing for long term growth to capture
this population. We can see the Becton
Dickinson beginning to take measures to be
competitive in the future market, but the
biggest impact will not take place until
sometime between 2020 and 2030.
Revenue
The two main factors that I am attributing
to revenue growth will be research and
development as well as aquistions.
As covered earlier in paper 2, the main
component of this industry is research and
development. Without innovations and
success in research and devlopment Becton
Dickinson will not be in a competetive
standing in the future. We can see that they
are currently focusing on this and are
currently investing heavily in this
department. It currently has a rate of about
11% and I predict this will be slowly
increasing over the next 5 years. Till hitting
about a max of about 11.70%
The change in revenue described above is
not solely from research and devlopment
but from acquisitions as well. I am
predicting small acquisitions will increase in
this industry because small companies are
expected to attempt to enter this market
with innovations to capture that growing
product demand. As revealed in paper 1 by
Porter’s 5 forces, this industry is infact a
hard one to enter and small companies that
are able to enter usually get bought out by
the bigger companies. For this very reason I
believe Becton Dickinson will take part in
acquiring incoming small companies making
a constant growing rate ranging from about
1-2% in the next 5 years.
Taking both of these growth factors into
consideration I am predicting the current
revenue of $8,846 to grow to $14,247. This
calculates to be about a 13% growth rate
throughout the next 5 years. This falls in
line with the trend of the companies
revenue as shown in (Figure 20). Of course
the majority of this growth stemming from
the increased sales fromresearch and
development.
Continuing down the income statement, I
am forecasting that both my Gross margin
along with my COGS will be increasing. Even
though I am predicting both to rise, I expect
my overall gross ratio to decline over time.
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6,000
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16,000
2000
2001
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2006
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2008
2009
2010
2011
2012
2013
2014
2015
2016
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2018
2019
Revenue
Revenue expected to continue growing at a
healthy pace.
Figure 20

As we can see in the gross margin ratio
graph (Figure 21) gross margin has been
volatile over the years, and decreased in
2014. I am expecting a continued decrease
due to the increase in buyer power
associated with the increasing demand. In
2019 I am predicting it to reach an all-time
low in the previous 10 years at a 50.5%
Even though gross margin ratio is
decreasing we can see in my gross margin
forecast below (Figure 22) that gross margin
will actually be increasing at a small
decreasing rate. We see that the reason
that Gross Margin is increasing while gross
margin % is decreasing is because COGS is
growing at a slightly higher rate than the
gross margin itself. The growth in COGS is
offset though through the increase in
revenue. My forecast shows a peak in 2019
reaching an amazing 7,900, which is almost
double the gross margin in 2012.
Continuing to look into the income
statement forecast we take a look into
operating expenses which of course tie into
my COGS which will be on the rise,
therefore my operating expenses are on the
rise as well, not only in amount but in total
percentage of revenue as well. I am
predicting a smaller growth then COGS and
predicting a total growth of about 1% over
each year, percentage wise. Operating
expense will be increasing at a lower rate
than the revenue which is causing gross
margin to increase even if my gross margin
ratio is decreasing.
Interest Expense has been historically low
up until 2012 when it jumped from 3.02%
to 4.48% and eventually hit the highest in
company history in 2015 at a total 5.14%. I
am forecasting interest expense to go down
in time due to the fact that management
has discussed bring debt doubt for the
future. Even though this was discussed, I am
still predicting an record breaking interest
expense of 5.2% due to the fact that the
company recently took on a major
acquisition in which it had to take out
additional loans, thus increasing interest
46%
47%
48%
49%
50%
51%
52%
53%
2000
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2019
GrossMarginratio%
Gross Margin ratio expect to conintuefalling
dueto increasing COGS
Figure 21
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2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
GrossMargin$
Gross margin will begrowing contrary gross
margin ratio.
Figure
22

expense. Over time though we should see a
decline in interest expense as management
is making it a priority to tackle this recent
rapid growth in debt.
EBIT margin of course will also be affected
by this decrease in tax expense. Since I am
expecting tax expense to decrease, I can
expect my EBIT margin to experience the
same trend. As we can see in Figure 23,
margin has been volatile but over increasing
since 2000, but I believe this is because of
the increase in tax expense along with other
factors. In 2014 my EBIT margin is at 20.5%.
By 2019 I am forecasting it to be at about
14.2%. This would be the lowest since 2005
prior to the financial crisis, and being a total
decrease of about 31%.
At the final income statement item, Becton
Dickinson’s Net Margins have been
following the exact same trend as the EBIT
margins. Just as I predict the EBIT margin
decreasing I am also forecasting that Net
margins will continue to fall. This is all tied
back to the decreasing gross margins and
increasing operating expenses. It seems to
be that Revenue overall is growing at a
great pace, but not enough to offset the
increasing expenses.
Based on my forecasts, Becton Dickinson’s
EPS is expected to grow from $5.81 in 2014
to $6.25 in 2019 as seen in Figure 24. They
have been increasing every year, so I have
no reason to believe they will not continue
to do so. Their management believes in
returning to the shareholders as much as
possible while still retaining enough to grow
the business. For this very reason their
research and development growth is slow
and steady. They do not want to reduce
EPS, and instead want to continue to grow
it.
My EPS forecast is not as aggressive as
Bloomberg is expecting as well as how
much they should be paying out in line with
their revenue growth. The reason being is
that I believe they may want to invest this
money else were then to jump drastically in
EPS growth.
0.0%
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10.0%
15.0%
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30.0%
2000
2001
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2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
EbitMargin
EBIT MarginForecastedto continue falling due to
decreases inlong term interest expense
Figure 23
$-
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2001
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2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
EPS
EPS expected to continuegrowing but at avery slow rate
Figure 24

In the table below is a summarization of my income statement forecasts for Becton Dickinson &
Company.
Income Statement; $M 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Revenue 7372 7584 7708 8054 8446 9544 10980 11265 12690 14302
Cost of Revenue 900 3,645 3,685 3,924 4,072 4,629 5,353 5,520 6,256 7,079
Gross Profit 3,877 3,939 4,024 4,130 4,374 4,915 5,627 5,745 6,434 7,223
Operating Expenses 2,085 2,152 2,293 2,395 2,917 3,484 4,030 4,157 4,708 5,335
Operating Income 1,793 1,787 1,731 1,735 1,457 1,461 1,535 1,588 1,726 1,888
Interest Expense 40 51 122 169 204 206 202 194 192 185
Pretax Income 1643 1,802 1,688 1,533 1,529 1,531 1,581 1,738 1,876 2.038
Income Tax Expense 411 485 417 363 236 169 232 224 354 500
Net Income 1,232 1,318 1,271 1,170 1,293 1,362 1,349 1,514 1,522 1,538
EPS 4.84 4.91 5.34 5.33 5.81 5.87 5.90 5.93 5.97 6.07

The Balance Sheet
For the balance sheet forecast I am using
the same approach as used for the Income
Statement. This means that I will be using
percentages to show growth and total
weight of assets, debts and equity. Items
such as Depreciation, PP&E, and Other
Assets will be projected on a separate basis.
Assets
On the Asset side of the balance sheet, my
overall prediction is that assets will begin to
grow at a high rate (Figure 25). This will
mainly be attributed to acquisitions as well
as patents that are common within this
industry.
One thing that I wanted to mention is that
along with asset growth my forecast is
showing increases in inventory which of
ocurse increase my COGS. If they are able to
keep current asset or inventory turnover or
improve on it they may be able to lower
inventory levels and thus decrease COGS.
Property Plant and Equipment were the
largest portion of assets up until 2013,
when Other Assets began to make up 40%
of total assets and Property Plant fell to
29%. After looking at growth trends I expect
that PP&E will increase slightly over the
years reaching a maximum of 36%. The
reason I increased it at such a high rate is
because as mentioned in paper 1,
technology and updated equipment is
essential to this industry. So Being that they
are investing so much in R&D I am sure
parts of this investment will go into new
equipment to keep up with the
competition.
I am also expecting other assets to increase
as well in forms of patents or any other
misc. assets. Since research and
development will be extremely heavy
within the next year we can expect to see
increases in this area as well. So I am
forecasting these to continue to make up
the largest portion of assets at 40%.
Using the information above I have
forecasted total assets to be at 12,907 in
2015 and 15,592 in 2019 (graph 17).
Overall effects on ROE
Looking at ROE (Figure 26) raises concern
over investing in Becton Dickinson. All the
assumptions made above definitely take a
toll on ROE as seen below in graph 18. ROE
began to fall in 2014 and according to my
forecast, will continue to do so drastically.
In 2015 ROE will be at 23.4% and by 2019
will be at a mere16.8%. This is a fall of 28%
which is very alarming.
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2018
2019
TotalAssets
Total assets expected to growth in line with revenue
and acquisitions
Figure 25

ATO
As assets are growing we would expect
asset turnover to improve as well. My
forecast (Figure 27) shows that this will be
true but it will be at a much slower rate.
This means that management will need to
discuss a way to improve asset turnover in
concordance with growth in assets. In 2015
I am forecasting a .74 for ATO and by 2019
it should reach .92, showing significant
improvement, but as I stated earlier at a
slower rate than assets are growing.
ATO * Margin
ATO times Margin is expected to remain
somewhat volatile as it has been in history.
2015 shows a decrease in ATO Margin and
this is attributed to the increases in debt
and interest expense that the company will
be taking on that year due to the merger.
We see in Figure 28 that even though it
does decrease in 2015, it will increase but it
is still decreasing compared to the current
2014 figure of 14.3% By 2019 it will be at a
much lower rate of 13.1%.
Final Thoughts
I believe the major research and
development growth will be coming during
this time frame and revenue will continue
to grow at a smaller rate as the elderly
population does settle in. The reason so
much is being invested at the time is due to
the change in course of research and
development. As talked about earlier,
Becton Dickinson is taking an approach on
attempting to make new products versus
product extensions. Therefore more
funding is needed. So we should not expect
such rapid Revenue growth past 2025.
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ROE
ROE expected to fall tremendously due to
increasing expenses
Figure 26
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ATO to improve but not at a fast enough to keep up
with Asset growth
Figure 27
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ATO*margin
ATO * Margin to continue fallingFigure 28

I believe that all of these downfalls are
associated to the increase in buyer power
that is to come in this market. Profit
margins were so great previously that this
increase in buyer power can drastically
change the profit of the industry as seen in
the graphs. The concern is that while buyers
have power to drive down prices and net
margins, the industry still has to invest a lot
in research and development in order to
achieve a standing within the market.
Rivalry is not a big issue within this industry
as described in Porter’s analysis but it is
apparent that will be changing soon with
the entire industry attempting to capture
more market share.
Overall it appears to be that Becton
Dickinson’s profit will be falling significant
but that they will be able to offset this
downfall with selling more volume. Thus
the companies financials will continue to
grow which signify a good sign but in
reality, the company will remain fairly
similar to current conditions due to the
increases in COGS and the fact that the
company will not be able to capitalize on
things such as Asset turn over to generate
even higher revenues and of profits. This
does raise some concerns not about the
company’s ability to improve performance
and lower their cost.

Discount Rate
Discount Rate
There are different models that can be used
to determine the discount rate, but the
most commonly used one is the CAPM
model, better known as the Capital Asset
Pricing Model. This model won William
Sharpe the Nobel Prize in Economics in
1990.
This model begins with stating that every
individual investment contains two types of
risk; systematic risk and unsystematic risk.
Systematic risk is the market risk that
cannot be diversified in any way because it
is the risk that every investor faces when
exposed to the market. Unsystematic risk is
the risk uniquely attributed to that
individual investment not correlated with
general market moves.
The CAPM formula to calculate the discount
rate is as follows:
Ke= Rf+ (Mrp*β)
Rf= riskfree rate
Mrp= marketriskpremium
Β= Beta
Risk Free Rate
Normally to get the risk free rate you can
reference the current 10 year Treasury
bond. Unfortunately, though this is not the
case at the moment. Currently the 10 year
Treasury bond’s yield is artificially low (see
Figure 29).Over time, the Fed has lowered
the yield dramatically as can be seen in the
graph. It is unsure when rates will rise so in
order to get a more accurate measure of
the risk free rate we should use the
normalized risk free rate approach.
You are able to calculate the Normalized
Risk Free Rate by calculating the Nominal
GDP, which is composed of productivity,
labor growth and inflation. I have used
Figure 3 to calculate Nominal GDP.
According to the above graph we can see
the forecast for all portions of the earnings
growth.
Productivity: I am forecasting to be a 2%.
We can expect productivity to increase due
to technological advances. For this reason I
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10yeartreasuryyield
Year
10 year treasury yield hasfallen significantly over yearsFigure 29
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Components of Nominal GDP by Decade
(Explains 98% of the Volatility of Reported Nominal GDP)
Inflation Labor Growth Productivity
Figure 30

chose 2% which is about the median as you
can see in the graph.
Labor growth: Due to current downfalls in
job reports, I will be pessimistic in
estimating labor growth. Also at this point
in time we are beginning to see jobs being
overtaken by machines. Due to both of
these factors, I am estimating a low .05%
for labor growth.
Inflation is hard to determine so I decided
to use the median for inflation forecast.
Inflation will be 2.5%.
Nominal GDP=.02 + .005 + .025 = .05 = 5%
Now that we have the Nominal GDP
(5%) we have to adjust it in order to get a
more accurate normalized risk free rate.
Usually you subtract any where from 50-
150bps to normalize the rate. I am going to
proceed to subtract 150 bps because
interest rates are extremely low and have
been fairly low for some time now. So this
will lead to a normalized risk free rate of:
Rf= risk free rate=.035=3.5%
Market Risk Premium
The market risk premium is the premium
that investors require in return for their
increased risk exposure of investing in
equities.
There are many different ways to calculate
the market risk premium. A few of the
approaches are the historical approach, the
implied approach, the corporate bonds and
the volatility index. For purposes of this
analysis I will be using the implied
approach. The implied approach shows
that the market risk premium is closely tied
to the risk free rate.
The market risk premium can be calculated
by subtracting the risk free rate from the
expected return on stocks. We can calculate
the expected return on stocks by adding the
current dividend of the stock market and
the expected earnings growth.
The current dividend of the stock market is
taken from the current dividend of the
SP500, which is currently 2.15.
Now we can calculate the expected return
on stocks. Earlier we calculated Nominal
GDP to be at 5%. We add that to our
current stock market dividend of 2.15, thus
giving us an expected return on stocks of
7.15%
Now we can calculate the MRP:
7.15%-3.5%= 3.65%
Beta
Beta is one of the most important numbers
when valuing a stock. It is a measurement
of the systematic risk, which was defined
earlier. The beta can measure systematic
risk for either a single stock or an entire
portfolio.
Beta represents an equity’s or portfolio’s
sensitivity relative to the overall market
movements. A company with a lower beta
(<1.0) is less sensitive to market shifts. A

high beta company (> 1.0) is more sensitive.
The S&P 500 has a beta of 1.0.
When attempting to accurately determine
the beta of a security there are some main
points from which to derive your beta
calculation including:
1. Revenue Sensitivity
2. Operational leverage
3. Financial leverage
4. Historical Beta
Revenue Sensitivity
For revenue sensitivity we will look into
how recessions affect the sales of Becton
Dickinson’s items. Due to the fact that the
business is correlated to the medical field,
we can expect that a recession will not have
an excess effect as it would for a luxury
item.
Even though the effects of a recession are
not expected to be high, we can expect
doctor visits to drop, thus meaning their
medical equipment usage will decline. This
will then lead to either order volumes
decreasing or order frequency to decrease.
As we can see Figure 31 below, the last
recession did in fact have an impact on BDX.
As we see below during the recession, the
revenue of BDX did drop and has been
slowly recovering. This provides additional
support that BDX is a cyclical stock and not
a defensive one.
Due to revenue sensitivity,we canexpectBeta
to be above 1.
Operational Leverage
The company seems to have a great market
standing when it comes to its operating
leverage. We can see in Figure 32 that the
company is well below market average.
For Gross margin they rank in at 12.7%. This
means that the volatility of their gross
margins is lower than 87.3% of the firms in
the S&P 500 meaning that it is pretty stable
compared to other firms.
The same can be said about the stability in
its Net Margin. It ranked in at 19.3%
meaning that their net margin standard
deviation is lower than 80.7% (100-19.3) of
the other companies included in the S&P
500.
They are both below the market median
symbolizing their stability. Normally this
would signify the security would have a
beta below 1 but since we already know
that beta will be higher than 1 it
strengthens the assumption that beta is
only slightly above 1.
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Year
RecessionseffectsRevenuesofBDXFigure 31

Financial Leverage
Even though BDX has done a great job at
keeping its gross margin and net margin
stable, it has run into a problem when it
comes to its debt. In their last annual
report they actually addressed this issue.
They are currently attempting to lower their
debt. As we see below in Figure 33, it is
slightly above the market median and ranks
in the upper 60%. This strengthens my
forecast of a beta above 1.
Historical Beta
Figure 34 was developed with information
dating back to the mid-1980s. As stated
earlier we can see that when the company
started up they had a high beta but we can
see that with time it became much lower
and much more stable. According to this
graph, the beta has been volatile but seems
to still be slowly rising since 2014. This does
in fact help my forecast of a slightly
increased beta compared to the current 1.2
beta given to the stock.
Beta Forecast.
Now assuming that the beta has been
rising but that the gross and net margins
are both very stable and that the company
is currently working towards lowering its
debt, I have forecasted 3 beta values for
different scenarios;
 Best Case scenario: 1.20
 Base scenario: 1.30
 Worst case scenario: 1.45
Discount rate Calculations
Using the Capital Asset Pricing Model I have
calculated the discount rate (Figure 35)
based on three different scenarios, the
base, the best case scenario, and worst case
scenario.
Best
Case
Base Worst
Case
Rf 3.5% 3.5% 3.5%
MRP 3.65% 3.65% 3.65%
Beta 1.2 1.3 1.45
Discount
Rate
7.88% 8.25% 8.79%
GrossMarginStandardDeviation(%) S&P500 BDXUNEquity Rank
Median 3.53 1.23 12.7%
90Precentile 13.56
10thPercentile 1.06
NetMarginStandardDeviation(%) S&P500 BDXUNEquity Rank
Median 5.37 2.17 19.3%
90Precentile 57.38
10thPercentile 1.41
DebttoEquity S&P500 BDXUNEquity Rank
Median 52.58 78.59 61.5%
90Precentile 258.49
10thPercentile -
0.00
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0.40
0.60
0.80
1.00
1.20
1.40
Beta
Date
Rolling 3 yearBeta for BDX well below 1
Figure
Figure 32
Figure 33
Figure 35

Final thoughts
I believe that all 3 assumptions are
reasonable and very much possible for the
future. I am surprised that beta is not
higher. Due to previous research done on
BDX I initially believed beta would be higher
at least ranging from 1.5-1.75. It is great to
see that the beta is in fact not within that
range and is a safer investment than
originally believed.

Firm Valuation
There are multiple models to assess the
firm value. For purpose of this analysis we
will be valuing the BDX stock value based on
3 different models:
 Dividend Discount Model/ Gordon
Growth Model
 Capitalized Earnings Model
 H Model
Before being able to use any of the above
models, I will have to calculate some inputs
for these models. Most significantly the
short term and long term growth rates.
To determine the growth rates, I will be
using historical data, along with the
industry and company analysis. Since the
medical equipment and device industry is
constantly changing and will be
experiencing much change in the upcoming
years, due to the baby boomers, most of my
growth rates will be based off of overall
economic conditions along with industry
conditions.
Long term Growth Rate
Previously I calculated my nominal GDP
(5%) which I believe is a good estimation of
long term growth. My nominal GDP was a
forecast as well and will serve as my base
assumption. I will do a best case scenario
and a worst case scenario as well. If the
economy were to slow down and the
industry began to fall we can forecast the
worst case long term grow to be about
4.0%. I calculated a low worst case scenario
due to the fact that this is a cyclical stock
meaning that it does fall in a recession
environment. Our best case scenario in a
robust economy would be 6%.
 Best Case: GLT = 6.0%
 Base Case: GLT = 5.0%
 Worst Case: GLT = 4.0%
Short term Growth Rate
Determining the short term growth rate is
going to be fairly tougher than usual. In the
industry analysis I came to the conclusion
that I believe that this industry will
outperform the market as far growth is
concerned due to the upcoming baby
boomers mentioned earlier. Through
previous research I believe. That combined
with acquisitions, which are extremely
common in this industry, lead me to believe
that short term growth will be higher than
in the past.
Earlier I was able to forecast ATO * Margin
which is a key to growth. For the upcoming
year of 2016 I forecasted ATO* margin at
9.8%.
In order to get a better estimation on short
term growth rate, I will look at 3 different
growth methods of calculation to forecast a
best case, worst case and base case
scenario.
1) The first short term growth calculation
approach I would like to look at is the
PEG ratio approach which is calculated
by:

PE ratio/PEG ratio= Expected Short-term
growth
15.91/1.38=11.53%
As we can see using the PEG ratio
approach we get a high growth rate over
11%.
2) Another approach for the calculation of
short term growth rate is the sustainable
growth method. This method calculates
how much the company can grow
without borrowing additional funds. This
rate is calculated with the following
formula:
ROE*Retention=short term growth rate
We calculated previously our forecasted
ROE for BDX at a mere 16.8%. In order to
complete the calculation we have to
calculate retention which is calculated
below (the EPS will come from our
forecasted values).
1-(2.38/6.25)=.62
Now we can calculate the short term
growth rate:
16.8%*.62=10.4%
3) The last approach I will take a look at in
order to calculate my short term growth
rate will be Historical Growth approach. I
will be calculating growth on a 3 year rolling
period, 5 year rolling, and 10 year rolling
period from quarterly data from the trailing
12 month EPS. As you can see in graph
Figure 36, EPS growth has been very volatile
and seems to be a lot lower than it has
been in history but is doing a lot better than
in bad years. As you can see it is increasing
since 2013, but compared to its other peaks
in history it is much lower. According to the
data EPS forecast growth would be around
8%.
After looking at these different approaches
and taking into account other findings such
as ATO *Margin, I have come to my
conclusion on short term growth rate. I am
predicting a worst case scenario of 6.5% (if
Becton Dickinson is unsuccessful in
innovative products) and a best case
scenario of 12%. My base case scenario will
be that of 9%. I have adjusted my base
scenario despite of the high predicted short
term growth rates shown by my models
above, due to increased buyer power as
well as increased rivalry which I predict will
continue to effect gross margin and growth
ability as shown earlier in my forecast
report.
 Best Case: GST = 12%
 Base Case: GST = 9%
 Worst Case: GST = 6.5%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
1993
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EPSgrowth
Year
BDX EPS Growth
Rolling 3yr growth Rolling 5yr growth rolling 10 yeargrowth
Figure 36

Dividend Discount Model (Figure 37)
This model is also known as the Gordon
Growth Model. This is the one of the most
commonly used models. This is an approach
of using the perpetual annuity equation to
value a stock. This method is calculated
with the following formula:
Value = (Div1*(1+LT Growth))/(Ke-LT
Growth)
 Dividend 1 (ttm): There is no calculation
needed in order to get the dividend 0.
We simply have to get the current
dividend per share which is $2.40.
 I will be using the Ke values forecasted
earlier in my report.
Best
Case
Base Worst
Case
Div 1 $2.40 $2.40 $2.40
LT Growth 6.0% 5.0% 4.0%
Ke 7.88% 8.25% 8.79%
Value $120 $70.15 $48.10
Capitalized Earnings Model (Figure 38)
This is a model presented to myself by
Professor Sweet as an undergrad. This
method takes into account the value of the
firm as is. This means that there is no more
capacity growth for the firm and that the
firm will enter no new markets. This model
also assumes the firm won’t grow, but
sustain current capacity, meaning the firm
will payout 100% of their earnings.
Value = (EPS1*(1+inflation))/(Ke-inflation)
 Earnings per share (ttm): just as
Dividend 1, there is no calculation
needed to obtain current earnings per
share. According to Bloomberg EPS for
Becton Dickinson is currently at $3.35.
 Inflation Assumption: To be consistent
we are going to keep inflation
assumption as 2.5% as we did earlier in
our discount rate calculation and
nominal GDP calculation.
Best
Case
Base Worst
Case
EPS1 $3.35 $3.35 $3.35
Inflation 2.5% 2.5% 2.5%
Ke 7.88% 8.25% 8.79%
Value $63.82 $59.72 $54.59
H Model (Figure 39)
This is the most uncommon model from all
3. It is also one of the most involved
formulas of them all. In order to continue
with the H model we have to predict H,
which is the time that we believe it will take
for the company to move from short term
rate to long term rate.
I believe that it may take the company
many years to get from short term growth
to long term growth due to the current
demand situation and changes of amount of
people in different age demographics. Not
only that but acquisitions are certain in the
near future due to incoming small
competitors attempting to gain market
share based on new products. They are
slowly but surely growing. For that reason I
think it will take them 20 years to get from
Figure 37
Figure 38

short term to long term growth. This means
that I will have an H of:
H=20/2=10
The formula for the H model is as follows:
Value= (Div1*(1+LT growth)+Div1*H*(ST-LT))/(Ke-LT)
Best
Case
Base Worst
Case
Div 1 $2.40 $2.40 $2.40
LT Growth 6.0% 5.0% 4.0%
ST growth 12% 9% 6.50%
H 15 15 15
Ke 7.88% 8.25% 8.79%
Value $211.91 $107.08 $64.63
Recommendations
The models I have used have generated a
particularly wide value of potential stock
prices, I do feel that most of the variances
could be attributed to the current down fall
in margins within not only BDX but the
industry as a whole all attributed to buyer
power increase as well as increase in rivalry.
Nevertheless based on my assumptions for
the forecasted growth rates and beta, I am
confident in this range and can assess a fair
recommendation.
If you see Figure 40, you can see all
different values and I have averaged the
models in order to see a more accurate
valuation. Currently BDX ‘s stock price is at
$148.68 (as of November 14, 2015) My best
case assumption estimates a price of
$144.68. with a downside of -3%, while my
worst case scenario estimates a price of
$57.86 with a downside of -61.08%.
Current = $148.68 Best Base Worst
Dividend Discount Model $120 $70.15 $48.10
Cap Earnings Model $63.82 $59.72 $54.59
H model $211.91 $107.08 $64.63
Average price $175.91 $94.44 $60.64
Upside/base/downside 18.31% -36.48% -59.21%
As you can see in Figure 40 all 3 different
models produces very different valuations. I
believe that H takes many more variables
into account so for this very reason the H
model valuation will compose 70% of the
averaged price. The other 30% will be
composed of the other two models. This
would mean that BDX is currently
overvalued.
I was not surprised to find that the stock is
overvalued due to all the previous research.
What I was surprised to find was that it is
36.48% overvalued currently. Due to this I
would strongly recommend to sell.
Figure 39
Figure
40

Comparison Analysis
We can compare the price of BDX relative
to their peers by comparing them to both
the market and their specific industry as a
whole. This can help us see whether they
are fairly price, overvalued, or potentially
undervalued. For this comparison analysis, I
will use the S&P 500 index as a
measurement of the overall market, and
the S&P North American Health Care
Equipment (S5HCEP)
I will be using four different ratios in order
to determine if BDX is either over, fairly or
under valued relative to both the market as
a whole as well as their respective industry.
My four ratios will consist of: Price to
Earnings (P/E), EV to Sales (EV/S), Price to
Book (P/B), and Price to Cash Flows (P/CF).
Price to Earnings (P/E) valuation
When looking at BDX’s PE ratio (Figure 41)
we can see that there seems to be no real
stability and is actually quite volatile. In
2008 we can see that the company took a
huge hit through the recession and has
been slowly rising. At about mid 2014 we
see the PE ratio finally reach levels equal to
those prior to the recession. Even at that
they exceed the prior high.
When compared to the market in 2003 we
can see that BDX’s PE ratio was below that
of the overall market and rose past it in
2004 and continued this way up until the
market crash and recession in 2008. After
2008, the PE ratio for BDX once again fell
below the overall market and followed it
very closely up until 2013. Since 2013 BDX
has followed a similar trend to that of the
market but it well above the market PE
ratio. The higher PE ratio relative to the
market leads me to believe that BDX is
overvalued.
To get a better view of BDX we can
compare it’s PE ratio to those in the S5HCEP
Index. We can see in Figure 42 that in 2006,
BDX achieved a higher PE ratio than
compared to that of their industry, and was
able to maintain this even through the
recession up until 2012. Since then it
appears that BDX has gotten close to
10
15
20
25
PeRatio
Date
BDX PE ratio slightly above market but falling
SPX BDX
Figure 41
10
15
20
25
PEratio
Date
BDX PE ratio recently falls below industy PE ratio
BDX Health Care Industry
Figure 42

reaching the PE ratio of their industry but
has not been able to match or surpass it.
This signifies that BDX is currently fairly
valued when compared to their industry.
EV to Sales (EV/S) valuation
Ev to sales is a good indicator of profitability
which is a good measure to use when
comparing firms. This metric is quit tricky. A
lower ratio is usually more attractive than a
lower one because it indicates that a
company has high sales relative to its value
but this is not always true. Ev to sales also
gives insight into the forecasted sales of a
company. A lower EV to sales can signal a
lower forecasting of sales versus a high Ev
to sales value which could indicate higher
sales forecast.
As we can see in Figure 43, in the year 2004,
EV to sales for BDX rose above that of the
overall market. They have maintained this
position in EV to Sales over the years and
had a dramatic increase in 2014.This
increase can be due to the noise of a
current proposition of a major acquisition.
This could have spiked an increase in
forecasted sales thus spiking EV to Sales as
seen above. This leads me to believe that
BDX is overvalued compared to the market
as a whole.
When comparing BDX’s EV to Sales and the
medical equipment industry as a whole
(Figure 44) we can see that BDX is above
that of the industry in the EV to Sales ratio.
They follow a trend very similar to that of
the industry but just at much higher ratios.
This could indicate that their sales are not
as high as competitors relative to
corresponding enterprise value. This could
also indicate higher forecasted growths and
be a good thing relative to the industry.
More research would need to be conducted
on competitors to see, what is the true
cause of this consistently higher EV to Sales
valuation of BDX relative to the industry.
Whatever the cause may be our analysis
signals that BDX is currently overvalued
relative to its industry.
1
2
3
4
5
EV/S
Date
BDX EV to Saleshigh above market norms
SPX BDX
Figure 43
1
2
3
4
5
EV/S
Date
BDX EV/S extremely high compared to industry
MedicalEquipment Industry BDX
Figure 44

Price to Book (P/B) valuation
Price to book is a great indicator of whether
a company is undervalued or overvalued.
This metric compares a stock’s market value
to its book value. A low P/B ratio could
signify major concerns of the company’s
fundamentals. This also is an indicator of
what would be left if the company where to
bankrupt immediately.
When compared to the market as whole
(Figure 45) we can see that BDX has a high
P/B ratio. This means that its stock market
value is high relative to its book value.
While it is higher than the market we also
see that it has fallen recently. Our graph
signals that BDX is currently overvalued
relative to the market as whole.
When comparing the P/B ratio of BDX
relative to competitors within its industry
(Figure 46) we see that it follows the same
trend as seen in the overall market of being
above other companies. We do see though
that gap between them both is much
smaller within the industry. While the
market as a whole analysis showed signs of
a significantly higher P/B ratio, we see that
it is not significantly higher when compared
to the industry. In fact, we see that recently
in 2015 BDX ratio is almost in line with that
of the industry and only very slightly above.
This analysis yields the same reports as the
market analysis showing signs that BDX is
overvalued but pretty close to the industry
recently so I will consider it fairly valued.
Price to Cash Flows (P/CF) valuation
The last ratio I will use to compare valuation
of BDX to both the market as a whole and
to their industry in specific will be the Price
to Cash Flows ratio. A single digit and low
valuation from this ratio can indicate that a
stock is undervalued.
1
2
3
4
5
6
PricetoBookratio
Date
BDX P/B higher than market rate
SPX BDX
Figure 45
2
3
4
5
6
PricetoBookratio
Date
Price to Book ratio inline with industry
BDX Health Care Industry
Figure

Relative to the market as a whole BDX
seems to be far ahead in the P to CF ratio.
The market seems to be really low since the
market crash in 2008 and slightly improved
over the years. As you can see in Figure 47
there seems to be a fall recently in 2015,
but BDX seems to have experienced a
similar fall. With the graph above I have
come to the conclusion that relative to the
market as a whole BDX is overvalued.
To get a better perspective on BDX’s Price
to Cash Flow valuation we will compare it to
those within its industry (Figure 48) As we
can see BDX is in line with their
competitors. This means that their
competitors are overvalued compared to
the market as a whole as well. At some
points we see in Figure 48 that BDX falls
below their competitors while other times it
surpasses them. After careful consideration
I believe that according to the Price to CF
ratio, BDX is fairly valued relative to its
industry.
Relative Value
Market Industry
P/E Over Valued Fair Valued
EV/S Over Valued Overvalued
P/B Over Valued Fair valued
P/CF Over Valued Fair valued
Figure 49 summarizes the metrics
throughout this valuation relative to both
the industry (S&P500) and their
corresponding market S5HCEP. After
evaluating multiple metrics I have
determined that tends to be more often
over valued then fair valued, and I did not
receive any results to support that BDX is
undervalued. As we can see BDX is fairly
valued relative to its industry except in the
EV to Sales ratio. So that signifies that the
industry as a whole for the most part is
overvalued when compared to the market
as whole.
Regression Model
After multiple trial and errors I used the
best model that I could generate and used it
to valuate BDX relative to it’s industry. I
started with both industry and sub industry
and kept getting off the chart numbers so
after much deliberation I decided to take
BDX’s main competitors as listed in the
5
9
13
17
21
PricetoCashflow
Date
BDX Price to Cashflow ratio significantly above
market
SPX BDX
Figure 47
5
10
15
20
PricetoCashflow
Date
BDX P to CF inline with industry but very volatile
Medical Equipment Industry BDX
Figure 48
Figure 49

S5HECP Index for a more accurate valuation
purpose.
For my regression (Figure 50) I used EV/IC
as my dependent variable, my independent
variables consisted of Beta as my risk
measure, and ROIC as a fundamental
variable and lastly I used Long term Growth
EPS for growth purposes on the regression
model. Through these variables I was able
to achieve a R Squared of 89.34% meaning
that these variables explain that percentage
of EV/IC.
From this regression model we can now
draw a scatter plot identifying the value of
BDX relative to its peers (Figure 51). In this
graph we can see that BDX appears to be
rich within its industry but is fairly close to
the trend line, but still above it. This means
that BDX is overvalued compared to
competitors but since they are so near the
trend line we will assume that they are
fairly valued as indicated by all other
comparisons earlier.
Target PE ratio
To calculate my target PE ratio I will use the
following formula:
P/E= Payout / (ke-g)
My pay out base ratio will be set at 40%,
because this is the average payout of
stocks. Our worst case scenario is going to
be 30% assuming that the company
reinvests a majority of funds. The best case
scenario will be set at 45%, since I believe
that it will not be much higher than average
because they will reinvest a large portion to
fund the R&D department which we
identified as a large investment earlier in
our research.
All additional information has been
forecasted and calculated earlier so we will
continue to use those for our calculation.
Below in Figure 52 we can see all of our
results for Target PE ratio and Target Price.
SUMMARY OUTPUT EV/IC
Regression Statistics
Multiple R 0.945219013
R Square 0.893438982
Adjusted R Square 0.847769974
Standard Error 0.571547014
Observations 11
ANOVA
df SS MS F Significance F
Regression 3 19.17204747 6.39068249 19.56335435 0.000880656
Residual 7 2.286661921 0.326665989
Total 10 21.45870939
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -3.987874391 1.297943504 -3.072456065 0.018005234 -7.057023078 -0.918725704 -7.057023078 -0.918725704
EQY_RAW_BETA -0.031276071 0.981837826 -0.031854621 0.975477226 -2.352953607 2.290401464 -2.352953607 2.290401464
Return on Invested Capital 0.092815709 0.043276356 2.144720967 0.069150568 -0.009516613 0.195148031 -0.009516613 0.195148031
BEst LTG EPS:D-1 0.517757757 0.091993975 5.628170299 0.00079229 0.300226573 0.73528894 0.300226573 0.73528894
BDX
0
1
2
3
4
5
6
4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 10
Chart TitleBDX fairly valued within the
CHEAP
RICH
Figure 51
Figure 50

Worst Base Best
Payout 30% 40% 45%
KE 7.88% 8.25% 8.79%
Growth 4.0% 5.0% 6.0%
Target PE 7.89 12.31 16.13
EPS 3.35 3.35 3.35
Target Price $26.43 $41.24 $54.04
Discounted price today
The discounted price today that I have
calculated Becton Dickinson to be at is
about $92.54 for best case, $57.45 base
case, and $41.84 for worst case. This was
computed using a discounted cash flow
with the growth rates listed above in chart
60 and previous betas calculated earlier.
Currently on December 4, 2015 BDX is
trading at $149.93 USD.
Conclusion
As we can see much of our analysis points
to BDX being overvalued when compared to
the whole market. When compared to their
industry they seemto be fair valued in both
the regression analysis and ratio
comparisons. Both our target price and our
discounted price are low compared to what
BDX is currently trading for strengthening
my conclusion of the stock being
overvalued.
After taking into consideration all aspects of
valuation completed, I believe that Becton
Dickinson is overvalued. Their discounted
target price is unattractive. I believe that
while BDX is overvalued I believe that the
entire industry of medical equipment is
overvalued compared to the market. Within
their industry they do have strong cash
flows and fair ratios making it a fair
investment, but I will still recommend a sale
of the stock.
Figure 52

Technical Analysis
The last analysis I will complete on the stock will be that of a technical analysis. This is a
security analysis method to help forecast the direction of prices through the study of past
market data, usually mainly price and volume to identify patterns.
We will take a look at three different models including the moving average models, the RSI and
the Ichimoku chart model.
Moving Average Analysis (Figure 53)
The moving average model is the most commonly used model. We will be using the 50,100 and
200 day MAs. The theory behind this model is that a stock is a good buy when the stock is
above all three historical MAs. If the stock ever falls below then it raises concern and one
should sell the stock according to technical analyst.
Above is the SMA graph for Becton Dickinson (Figure 53). The 50 SMA seems to be very volatile,
especially in the current month of November. August raised some major concerns as you can
see that the stock fell well below all three averages, which would signify a very strong sell. In
September we see the stock begin to rise again and slowly begin to beat each of the SMAs
again. As of November, the stock seems to be well above the markers and does not seemto
have any sign of downfall, which would imply a buy recommendation according to this technical
analysis model.
Figure 53

RSI Analysis (Figure 54)
Another popular technical analysis model used is the Strength Index (RSI) developed by J.
Welles Wilder. This is a momentum oscillator that measures the momentum of price changes.
The RSI oscillates between zero and 100. In this theory the RSI is considered overbought when
above 70 and oversold when below 30.
As we can see in Figure 54, BDX is currently at 63.38 as of December 8, 2015. As we can see BDX
has not only been extremely close to the red marker within their last fiscal year 2015, but
actually surpassed the 70 benchmark from July 29, 2015 up until August 6, 2015. Then at the
end of August we see it fall under the 30 bench mark as well. As we progress the year
everything seems fairly fine up until the very beginning of November. Once again we see our
RSI surpass the 70 benchmark signaling it has been overbought. While it does fall back below
70, it is still significantly high which means it might be a good time to sell very soon.
Ichimoku Cloud Analysis (Figure 55)
The last technical analysis method I want to cover is known as the Ichimoku. It looks complex at
first, but the method was designed by Goichi Hosoda, who uses five elements that are used
together to develop a broader picture that can help identify trends and signals to better invest
in the market. The element are as follows:
o Tenkan Sen – The moving average of the highest peak and lowest point over the last 9
trading days. (conversion line/ purple trend line)
o Kijun Sen – This moving average is the same as the Tenkan Sen but over 26 trading days
instead of 9 trading days. This is usually used in combination with the Tenkan Sen to
suggest probabilities of future momentum. (Base Line/ Yellow trend line)
o Senkou Span A – This is the average of the Tenkan Sen and Kijun Sen, plotted 26 days
ahead.
o Senkou Span B – This is the average of the highest high and lowest low over the last 52
days, plotted 26 days ahead.
Figure 54

o Chikou Span – This is the closing price plotted 26 days behind. This element is usually
used as a confirmation of trends and momentum and provide support and resistance
levels highlighted by the other elements. (Lagging line/ Gray trend line)
As we can see in Figure 55 the Price line was moving through the cloud at about mid October
and is now above the cloud signaling a bullish trend. As we can see the price line is also slightly
above the base line also showing trends of a weak bullish trend.
Furthermore the Tenkan (conversion) line has recently reached and seems to surpass the Kijun
(base) line from below which signals a bullish trend as well. Contrary to what the RSI signaled,
this model is signaling that there is currently a bullish market trend and that an investor should
by the stock. If we see any downturn or sign of bearish market we should sell immediately.
Technical Analysis Conclusion
After completing all three models I found that each model contradicted one another. Some
show trends that suggest to buy while others signal the opposite suggesting a sell. The most
difficult of the three to understand in my opinion was the Ichimoku Chart as there are many
variables and they can contradict themselves in a sense at times, but overall I think it is a great
model in itself as well. After looking at different models of technical analysis based on these
models solely, I would suggest for an investor to hold the security but due to previous research,
I still believe the best option is to sell the security.
Figure 55

BDX security Analysis

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