Becton Dickinson Trying To Leverage COVID-19 Opportunities While Fixing Some Longer-Term Issues

COVID-19 has created challenges for most med-tech companies, but Becton Dickinson (BDX) ("BD") already had a lot of balls to juggle before COVID-19 disrupted hospital and physician procedure counts. While COVID-19 has itself created some opportunities in testing and the pre-filled syringe business, longer-term issues in the drug-coated balloon and drug pump businesses have caused some headaches for management.

Becton Dickinson has actually been a pretty meaningful sector underperformer since announcing the deal for Bard back in 2017, though the shares are relatively popular with the sell-side on assumptions that BD will benefit from increased COVID-19 testing volumes, an eventual vaccine, resumption of elective procedures, and an eventual resolution of its Alaris pump recall. Although I don’t value BD has highly as those on the sell-side, I do believe the shares are still somewhat undervalued today.

 

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Becton Dickinson Trying To Leverage COVID-19 Opportunities While Fixing Some Longer-Term Issues

AngioDynamics Continuing To Slowly Shift Its Mix Towards Growth

Following AngioDynamics (ANGO) may be a little like watching paint dry given the low growth rate (often a severe valuation-limiting issue in med-tech), but the stock has at least outperformed the average med-tech stock since my last write-up in July and has outperformed more significantly over the past 12 months (over 25% versus around 10%).

AngioDynamics remains a hurry-up-and-wait story, with significant potential in the NanoKnife business. Oncology in general remains a worthwhile opportunity for AngioDynamics, and I won’t be surprised to see the company make further portfolio moves, perhaps including the sale of under-performing low-potential segments. Execution has been hit-or-miss here for a long time, though, and while the NanoKnife has meaningful upside on positive trial outcomes, a negative trial result would seriously undermine the value. With around 10% upside in my base case and closer to 20% upside in my bull case, I’d consider this a borderline buy today.

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AngioDynamics Continuing To Slowly Shift Its Mix Towards Growth

AngioDynamics Slowly Building Confidence In Its Turnaround

The current CEO of AngioDynamics (ANGO) has referred to his restructuring plan at times as “fixing the plane while its flying”, and that’s not a bad description. Years of questionable management choices and changes in direction left AngioDynamics with a dated, not particularly competitive, line-up of products that have long consigned the company to weak growth and feeble margins, but management’s restructuring plans look sensible and achievable.

Investing in AngioDynamics means taking some measure of a leap of faith that those restructuring efforts will lead to actual organic revenue growth – something the company has lacked for the better part of a decade – and improved margin leverage. The valuation would seem to suggest that the market is still skeptical that AngioDynamics can ever achieve meaningful growth, leaving some upside for intrepid investors if management can in fact deliver.

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AngioDynamics Slowly Building Confidence In Its Turnaround

Seeking Alpha: Coloplast Is A Rare Story On Multiple Levels

You don't see many large-cap med-tech stocks trade for more than seven times sales, but then you don't see many companies in that space logging high-single digit sales growth and excellent margins/returns on capital with a significant opportunity to grow sales and profits even further. That's the basic story on Coloplast (OTCPK:CLPBY) - a Danish med-tech company that has built an excellent business by focusing on some decidedly un-sexy areas of healthcare like ostomy and incontinence - and it creates a challenge for investors. While investors can do well in supposedly "boring" med-tech stories like Becton Dickinson (NYSE:BDX) and Bard (NYSE:BCR), it's tough to ignore an eye-watering multiple even when the growth is strong.

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Coloplast Is A Rare Story On Multiple Levels

Seeking Alpha: Structurally Light On Growth, Baxter Has A Lot Of Work Ahead

In healthcare, as in most segments of the market, growth fixes or at least papers over a lot of problems. Nobody really cares if the latest hot tech company is producing lousy margins and has no clear path to meaningful free cash flow - as long as the revenue growth is eye-popping, that's good enough for a high multiple until the day of reckoning comes into view.

For Baxter (NYSE:BAX), the split/spin-off of Baxalta (NYSE:BXLT) leaves behind a company with solid market share in stable markets, but management is going to have to roll up their sleeves and put in some work to find growth opportunities and drive better margins. There is certainly room for Baxter to do better in infusion pumps and renal care, and biosurgery can be a decent business in the coming years, but the market is already expecting a lot of improvements here in the years to come.

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Structurally Light On Growth, Baxter Has A Lot Of Work Ahead

The Motley Fool: Is Becton, Dickinson and Company a Buy?

The general theme of med-tech earnings through this cycle seems to be that the market has gotten a little bit ahead of many of the companies, leading to earnings reports that the sell-side characterizes as "slightly disappointing." Among those is Becton Dickinson (NYSE: BDX  ) , a generally reliable company that is structured more for long-term performance than short-term growth. Analysts seem focused on the weak results in diagnostics, but the overall picture hasn't really changed all that much.

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Is Becton, Dickinson and Company a Buy?

Seeking Alpha: Cepheid's Results And Shares Are On Different Paths

Within the higher-growth molecular diagnostics segment of diagnostics, Cepheid (CPHD) remains one of the real up-and-comers. Roche (OTCQX:RHHBY) still has quite a bit more market share than Cepheid (and/or anybody else), but Cepheid stands shoulder to shoulder with big names like Abbott (ABT), Becton Dickinson (BDX), and Hologic (HOLX) and actually has leading share in terms of systems placement. Margins are still a "build it and they will come" sort of proposition, but as Cepheid continues to develop and launch high-volume tests, it should be in position to reap significant leverage down the road.

The concern here is that the market is already a long ways down that road in terms of valuation. Even if the company can more than double its share of the MDx market and generate FCF margins on par with the best companies, the shares are already well ahead of the implied value. Assigning Cepheid the typical top-of-the-range med-tech growth multiple of 8.0x forward sales produces a more attractive $55 target, more than 20% above today's price, but that multiple may be harder to maintain if the market really is turning away from aggressive growth stories in the healthcare space.

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Cepheid's Results And Shares Are On Different Paths

The Motley Fool: A Whole New Opportunity For Hologic Inc?

Women's health specialist Hologic (NASDAQ: HOLX  ) has had a rough go of it. At a time when most companies in the medical equipment or diagnostics markets can look back on a great two-year run in their share prices, Hologic's shares have chopped around and gone nowhere fast (up just 2%). This isn't a mistake on the part of the market, as Hologic has underperformed due to slow adoption of 3D tomosynthesis, changing recommendations for cervical cytology testing, and fiercer competition in diagnostics.

In hiring former Stryker CEO Stephen MacMillan, though, the board may have put this company back on the right track. MacMillan's experience in improving sales efforts and integrating acquisitions both speak to areas where Hologic needs to improve, and there is certainly room for improvement here.

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A Whole New Opportunity For Hologic Inc?

The Motley Fool: Becton, Dickinson & Co Poised To Be A Large-Cap Growth Leader

When the worst thing you can say about a company is that its stock doesn't look very cheap, that's not a bad situation. It is challenging for me to see substantial undervaluation in Becton Dickison (NYSE: BDX  ) these days, even given the company's excellent share in safety devices, pre-filled syringes, and autoinjectors, and above-average growth in emerging markets. Although I'd be in no rush to sell, I would suggest investors keep an eye on the changes under way throughout the diagnostics industry.

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Becton, Dickinson & Co Poised To Be A Large-Cap Growth Leader

Seeking Alpha: Great Growth Doesn't Come Cheap With Cepheid

Investors looking for good plays in the diagnostics space have some difficult choices to make. High-quality companies like Becton Dickinson (BDX) or Trinity (TRIB) don't come all that cheap, while others like LipoScience (LPDX) have some serious issues to address. Cepheid (CPHD) is definitely in that former camp, as the company's GeneXpert system is an excellent automated molecular diagnostics platform that has garnered leading share in hospital-acquired infections and continues to leverage new test launches.

Cepheid is expensive by almost any metric, but med-tech investors are willing to pay for growth and Cepheid's strong share and differentiated platform could yet attract strategic buyers. These shares are definitely vulnerable to any operational stumble, not to mention a sudden shift in market sentiment regarding the appropriate premium for growth, but I wouldn't step in front of them (to short), nor would I rush to sell if I owned them.

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Great Growth Doesn't Come Cheap With Cepheid

Seeking Alpha: LipoScience Facing A Long, Hard Slog

Writing anything positive about LipoScience (LPDX) was a losing move in 2013, as the stock moved steadily down throughout the year. Making matters worse, it wasn't just a "the market doesn't get it" phenomenon as the company logged three straight quarters with revenue year-on-year revenue declines - something nobody wants to see from a company that is supposed to be in the early days of a major product launch.

I continue to believe there's still hope here, even if that hope has been pushed out a few years. Clinical studies are backing up the validity and utility of the LDL particle assessment approach and I believe that there is a strong argument to make here for LipoScience's NMR LipoProfile test being a valuable behavior-changing test. The problem is that it's going to take time for the company to sell payers and doctors on that value. The potential value in the shares is great, but so too is the risk and there are no guarantees that LipoScience will make it to that critical inflection point where revenues and profits begin to flow into the company.

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LipoScience Facing A Long, Hard Slog

Seeking Alpha: November Brings A Cold Gust Of Reality To Hologic

Diagnostics and healthcare imaging specialist Hologic (HOLX) has been an odd duck within my coverage list for some time. The company has a pretty mixed record of creating shareholder value, with a pronounced tendency to overpay for M&A deals and then under-develop the technology it acquires. And yet, investors and analysts have generally stuck by the company, likely afraid to turn their backs on the potential of 3D mammography and molecular diagnostics.

With fiscal fourth quarter results in hand and disappointing guidance for fiscal 2014 laid out in black and white, investors sold the shares off sharply on Tuesday. Even with the reset in expectations and valuation I struggle to see a major mispricing in these shares as there seems to be a piece of bad news to offset almost all of the bullish points. I am not really expecting this latest disappointment to puncture the optimism bubble around Hologic, but I can't get all that excited about a company that appears to need a lot of work to get back to fighting (i.e., "growth") trim.

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November Brings A Cold Gust Of Reality To Hologic

The Motley Fool: Johnson & Johnson Looks To Turn The Fading Ortho Diagnostics Unit Into Cash

While Foolish readers know all too well that a good turnaround story can drive excellent shareholders, sometimes discretion is the better part of valor and it makes more sense to just get out and move on. That is the attitude of Johnson & Johnson (NYSE: JNJ  )  with respect to its Ortho Clinical Diagnostics, or OCD, business, with the company openly acknowledging that it has begun discussions to sell this long-underperforming unit.

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Investopedia: Hologic Struggling To Find A New Path

Hologic's (Nasdaq:HOLX) difficult midlife crisis continues. With its core cervical cancer screening business struggling in response to new recommended testing intervals and the 3D tomo mammography business slow to ramp up, Hologic is a distressing mix of sluggish organic growth and a debt-laden balance sheet. While some investors seemed encouraged by the company's move to bring back its former CEO, there's a lot of work to be done to carve out an attractive growth path for this company.

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http://www.investopedia.com/stock-analysis/080713/hologic-struggling-find-new-path-holx-dgx-ge-bdx.aspx

Investopedia: Becton Dickinson Already Priced For Excellence

It's pretty rare to see an “Underperform” rating on a med-tech stock these days, but Becton Dickinson (NYSE:BDX) carries more than Johnson & Johnson (NYSE:JNJ), Abbott (NYSE:ABT), and Cepheid (Nasdaq:CPHD) combined. I won't pretend to have read all the research reports out there, but it seems that most of those analysts who are cautious/negative on BD are so because of the stock's very robust valuation and concerns about both near-term and long-term growth in the diagnostics business. I too see these shares as overpriced relative to the likely growth trajectory, and wouldn't be a buyer at these levels.

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http://www.investopedia.com/stock-analysis/080113/becton-dickinson-already-priced-excellence-bdx-abt-rhhby-cphd-holx.aspx

MassDevice: CareFusion May Be Weighing Two Very Different Deals

At the risk of sounding a bit mean, CareFusion (NYSE:CFN) doesn't get all that much attention in the market. The company has a solid business between its operations in pharmaceutical dispensing, infusion, respiratory care, and procedural disposables, but it never really seems to get much attention unless/until there's another round of news about infusion pumps – a business where rivals like Baxter (NYSE:BAX) and Hospira (NYSE:HSP) have seen recalls that benefited CareFusion.

That has changed very recently, though, as CareFusion seems to be a key potential acquirer for at least two medical device businesses known to be on the block – ICU Medical (NSDQ:ICUI) and Smiths Group's (LON:SMIN) Smith Medical. CareFusion has long been an active acquirer and recently not only reaffirmed its commitment to future deals, but a willingness to do larger deals than before. While both ICU Medical and Smiths Medical make solid sense for CareFusion, both deals have certain drawbacks as well.

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MassDevice: The Strange Case Of The Diabetes Market

It wasn't so long ago when diabetes was one of the hot sectors of med-tech where many companies felt they had to have a presence, no matter what the cost. And while it is true that the incidence of diabetes continues to increase at worrisome rates in many countries, the diabetes market is no longer a “build it (or buy it), and the growth will come” type of proposition. It may not be quite true that diabetes as become a “winner takes all” sort of market, it is definitely a market where data, pricing, and marketing muscle make a big difference.

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http://www.massdevice.com/blogs/massdevice/strange-case-diabetes-market

Seeking Alpha: Can New Management Drive New Growth At Techne?

Techne (TECH) has always been a little different in the realm of publicly-traded life science companies. While the company's headquarters are pretty pleasant once you're inside, the surroundings are a pretty nondescript commercial/light industrial zone. Likewise, it's a little strange to sit down as an analyst with a management team that tells you they will not do road shows or conference calls, and doesn't much care whether they get any attention from Wall Street at all.

None of this is meant as a criticism against the company - management was always unfailingly polite and helpful to me in my analyst days, and the company's stock has generated excellent returns over the past 20 and 10 years. Where there is an issue, though, is in the more recent performance, where Techne has notably lagged other life sciences companies like Thermo Fisher (TMO), Sigma-Aldrich (SIAL) and more specialized/focused companies like Illumina (ILMN).

I'm optimistic about the potential for new management to put Techne on a more growth-oriented footing, not only with an expanded international focus but also perhaps a wider view of the company's addressable market opportunities. While I could see bull-case upside into the low $80s for Techne, that requires a level of transformation that is pretty aggressive. A more probable trajectory suggests Techne is close to fair value today, but still offers good near-real time exposure to life sciences spending.

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Can New Management Drive New Growth At Techne?

Seeking Alpha: LipoScience Gives Its Shareholders Chest Pains

There's a good reason that I always include the warning that small-cap med-techs carry above average risks, and LipoScience (LPDX) dutifully provided an example last week. Due in part to system placement delays and delays in ramping up new sales reps, this emerging diagnostics company missed expectations for the first quarter and lowered guidance for the rest of the year.

Retribution was swift and severe - the shares tanked 25% in a single day. Now the question for investors is whether there is still an opportunity here and where it's worth the risks to buy shares in the hopes of realizing that opportunity.

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LipoScience Gives Its Shareholders Chest Pains

Investopedia: Recent Financials May Not Be Entirely Fair To Hologic

I have no qualms with those who believe it is the responsibility of the management of public companies to communicate clearly and accurately with investors (and analysts) about the current state of the business and the likely near-term conditions. Likewise, I don't particularly object when the Street punishes those companies that come in short of expectations without having given suitable warning.

So I can understand some of the disappointment with Hologic (Nasdaq:HOLX) these days – the company arguably could have done a better job communicating (and adjusting expectations) in regards to the fall-off in 2D mammography, ThinPrep, and the Chinese business. At the same time, though, I see a lot of what's troubling Hologic as macro issues impacting the sector as a whole. As the company is continuing to execute reasonably well on costs and the Gen-Probe integration, today's share price may be something of an opportunity.

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http://www.investopedia.com/stock-analysis/050813/recent-financials-may-not-be-entirely-fair-hologic-holx-bdx-qgen-ge-jnj-phg.aspx