Upgrading Our Growth Forecast for Becton, Dickinson

We're raising our fair value estimate for Becton, Dickinson and Co (BDX) to $186 per share, mainly due to our upgraded long-term growth forecast across most business lines. While some changes are minuscule (50-100 basis points), they have a significant impact on a company that recently saw growth in a 3%-4% range. Across the firm, we are seeing the effects of significant R&D investments, with BD's pipeline the strongest it's been in our history of covering the firm. The entire portfolio is expanding, including BD's presence in informatics, which historically hasn't been its core focus. Device interconnectivity is an important pillar of BD's focus on the entire care continuum, particularly in areas like diabetes, where BD has always been strong, and is an attractive opportunity, both in the developed world and in emerging markets.

The essential nature of BD's medical products has given the firm ample cash flows for reinvestment in areas such as diabetes, injectables, and biosciences. The company has also built out massive presence in emerging markets, with its distribution and manufacturing network unparalleled in the med tech world. The acquisition of CareFusion was a culmination of the firm’s transformative efforts over the past few years, and the ultimate payoff of this transaction--profitable growth--is becoming evident. CareFusion's product suite provided many complementary opportunities to BD’s own products, which should yield revenue synergies worldwide, particularly in emerging markets, where CareFusion’s presence has historically been lacklustre.

CareFusion also gives BD an opportunity to apply its penchant for running efficient operations to squeeze CareFusion’s bloated infrastructure. Cost synergies here aren’t just management-speak but are instead real, given CareFusion’s inefficient infrastructure. We estimate BD to exceed its conservative synergy guidance; coupled with incremental revenue opportunities, this should ultimately result in value accretion.

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