This medical device company beat earnings estimates in its recent quarter, posting $0.29 per share, five cents higher than expected.
CR Bard Inc. (BCR)
from DRIP Investor
Jump-starting growth is a difficult thing for any company, let alone a billion-dollar enterprise. However, CR Bard (BCR) has done just that. The company, a maker of medical, surgical, diagnostic, and patient-care products, has seen sales and profits grow nicely over the last three quarters. This growth spurt follows a multi-year period of relatively flat top- and bottom-line growth.
New products and a realignment of its product portfolio appear to be driving the improvement. The stock has responded to the improved growth, with these shares trading around their 52-week high. Still, plenty of upside exists for the stock, especially with the long-term growth potential of the health-care sector in general. The stock is a buy at current prices.
Bard has four divisions and more than 15,000 products in the disease areas of vascular, urology, oncology, and surgical specialty. Products range from devices that treat hernias, to stents that prevent blood clots from traveling to the lungs, catheters that reduce hospital-acquired infections, thermoregulatory devices designed to monitor and control a patient’s temperature, and ports that deliver chemotherapy.
The firm has been seeing decent growth across virtually all of its segments. Through the first three quarters of 2014, vascular sales were up 9%, urology 8%, oncology 6%, and surgical specialties 14%. The segment gains pushed sales up 9% for the three quarters. Earnings over the next few quarters should be aided by new products, especially the company’s Lutonix drug-coated balloon (DCB) catheter. The product, which received FDA approval in October, is the first and only FDA-approved DCB available in the U.S.
Bard stock trades at 19 times the 2015 earnings estimate of $9.22 per share, so the shares are not cheap. Adding risk to the stock are thousands of lawsuits regarding the company’s transvaginal mesh implant product. Obviously, more clarity on this front would be welcomed, but history shows that investors are better off focusing on a company’s operations than on the “what if ” scenarios posed by litigation. Wall Street is well aware of the magnitude of the problem, so a reasonable expectation would be at least some if not most of the risk is already baked into the current price.
I know some investors will be turned off by Bard’s triple-digit stock price. However, the company offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Initial purchases can be made with a minimum of just $250, and subsequent investments are a minimum $25. Thus, the DRIP plan carves up this high-priced stock into more accessible chunks for any investor. Also, a stock split from current prices would not be a surprise. I would expect the dividend to grow at least 5% per year over the next several years. The stock’s valuation is such that these shares could pull back during a more pronounced market correction. Still, given my favorable long-term view of the stock, I would use price weakness as an entry point.
Charles A. Carlson, CFA, DRIP Investor, www.dripinvestor.com, 800-233-5922, February 2015