BAX Baxter International Inc

We reiterate our Neutral recommendation on Becton, Dickinson and Company (BDX). Earnings for the second quarter matched the Zacks Consensus Estimate of $1.38. Becton, Dickinson recorded second quarter revenues of $1,991 million, up 3.6% (or 4.6% in constant currency) year over year, surpassing the Zacks Consensus Estimate of $1,942 million.

The company is pursuing a number of key product initiatives. It will launch several products before the end of fiscal 2013.

Besides, Becton, Dickinson favorably tweaked its guidance for the fiscal year on a currency neutral basis. The prospects for safety needles are more upbeat in Europe, than in the U.S. market, following the adoption of safety standards. Next generation safety needles were recently launched.

Becton, Dickinson maintains a focus on geographical expansion into overseas markets, in particular the emerging markets, which accounted for about 21.4% of revenues in the second quarter of 2012 (growing at 10% year over year). Growth in safety needles in emerging markets was a bright spot, which rose 26% year over year.

Cash flows, including fresh debt, are being utilized for large stock repurchases. Moreover, the company is engaged in operational enhancement and cost containment. However, it suffers from a lack of near-term catalysts even though it has undertaken several initiatives to bolster product pipeline.

We remain cautious about Becton, Dickinson due to the lack of major short-term catalysts. The rising demand for safety-needle products (with higher price points and margins) was the primary driver of the company’s past growth, which is not expected to continue, given that the U.S. market is already largely penetrated.

On the positive side, Becton, Dickinson’s preeminent global healthcare products franchise is partly insulated from volatile macroeconomic conditions and structural deficiencies elsewhere in the healthcare delivery field.

Becton, Dickinson faces a wide range of competitors, including Baxter International (BAX) in certain niches, in each of its three business segments. We currently have a long-term Neutral recommendation on the stock. The stock currently retains a Zacks #3 Rank, which translates into a short-term “Hold” recommendation.

 
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