This article is going to look at blue-chip dividend growth stock Becton Dickinson & Co through the lens of FAST Graphs™, fundamentals analyzer software tool, which shows the company currently in value. The dividend growth investor might want to research this company further for a possible candidate for their portfolio.
About Becton Dickinson & Co: Directly from their website
"BD is a leading global medical technology company that develops, manufactures and sells medical devices, instrument systems and reagents. The Company is dedicated to improving people's health throughout the world. BD is focused on improving drug delivery, enhancing the quality and speed of diagnosing infectious diseases and cancers, and advancing research, discovery and production of new drugs and vaccines. BD's capabilities are instrumental in combating many of the world's most pressing diseases. Founded in 1897 and headquartered in Franklin Lakes, New Jersey, BD employs approximately 29,000 associates in more than 50 countries throughout the world. The Company serves healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical industry and the general public."
Earnings Determine Market Price: The following earnings and price correlated FAST Graphs™ clearly illustrates the importance of earnings. The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.
Earnings & Price Correlated Fundamentals-at-a-Glance
A quick glance at the historical earnings and price correlated FAST Graphs™ on Becton Dickinson & Co shows a picture of a company that is in-value based upon the historical earnings growth rate of 10.8% (orange circle) and a current PE of 14.5. Analysts are forecasting the earnings growth to continue at about 9.5%, and when you look at the forecasting graph below, the stock appears in-value, (it's inside of the value corridor of the five orange lines - based on future growth).
Becton Dickinson & Co: Historical Earnings, Price, Dividends and Normal PE Since 1998
Performance Table Becton Dickinson & Co
The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return; capital appreciation and dividend income. Dividends are included in the total return calculation and are assumed paid, but not reinvested.
When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident. In addition to the 8.1% capital appreciation (green circle), long-term shareholders of Becton Dickinson & Co, assuming an initial investment of $1,000, would have received an additional $436.40 in dividends (blue highlighting) that increased their total return from 8.1% to 9% per annum versus 4% (red circle) in the S&P 500.
The following graph plots the historical PE ratio (the dark blue line) in conjunction with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as low as it has been since 1998.
A further indication of valuation can be seen by examining a company's current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for Becton Dickinson & Co is 2.02 which is historically low.
Looking to the Future
Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:
The rate of change (growth rate) of the company's earnings
The price or valuation you pay to buy those earnings
Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.
The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.
The consensus of 21 leading analysts reporting to Capital IQ forecast Becton Dickinson & Co's long-term earnings growth at 9.5% (orange circle). Becton Dickinson & Co has medium long-term debt at 34% of capital (red circle). Becton Dickinson & Co is currently trading at a P/E of 14.5, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Becton Dickinson & Co's True Worth™ valuation would be $126.80 at the end of 2017 (brown circle on EYE Chart), which would be a 12.3% annual rate of return from the current price (yellow highlighting).
Earnings Yield Estimates
Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.
Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Becton Dickinson & Co to an equal investment in 10 year Treasury bonds, illustrates that Becton Dickinson & Co's expected earnings would be 5.9 (purple circle) times that of the 10 Year T-Bond Interest. (See EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.
Summary & Conclusions
This report presented essential "fundamentals at a glance" illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although, with just a quick glance you can know a lot about the company, it's imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.
Disclosure: No position at the time of writing.