“One of C.R. Bard, Inc.’s (BCR) first customers was its founder, Charles Russell Bard, an American importer of French silk. In 1907, he started trading in Gomenol, a plant oil known for relieving inflammation, that he used to treat his own urinary discomfort caused by tuberculosis. By 1923, the company distributed a wide assortment of urological and surgical products. By 2010, Bard sold more than 8,000 products in more than 100 countries.
“Bard sells mostly to hospitals, an end market dealing with fewer patient visits. Hospitals have lowered device utilization to keep costs low. Bard sees more of the same in 2011, but both its own per-share-profit guidance and the consensus call for 14% growth. Management plans to reach that target through a combination of 10% higher operational growth and a fresh $750 million share-repurchase program, potentially reducing outstanding shares by about 8%. Should demand from hospitals improve, Bard’s outlook could prove conservative.
“The stock’s Quadrix Overall score of 92 has climbed steadily since July, lifted by rising ranks for Momentum, Earnings Estimates, and Performance. Bard is a Buy and a Long-Term Buy.
Business Breakdown
“Bard built a reputation as a consistent grower by averaging 11% higher sales and 18% higher per-share profits from 2001 to 2008. In the last two years, that growth has slowed to an average of 5% for revenue and 12% for earnings per share.
“Seeking to resume its former trajectory, Bard is ramping up investment in research and development, which equaled 6.8% of revenue in 2010. Bard will also try to push further into emerging markets in Asia and Latin America. In 2010, Bard collected 69% of sales in the U.S., followed by 17% in Europe and 5% in Japan.
“Bard often supplements organic growth with acquisitions. In July, Bard spent about $200 million net of cash for SenoRx, a maker of medical devices used to treat breast cancer. The urology business (26% of revenue) is especially sensitive to pricing pressure and weak volume growth in procedures. Sales rose 3% in 2010. The latest version of the Foley catheter—first distributed by Bard in 1934—decreases the rate of urinary-tract infections. The segment also makes devices that remove kidney stones.
“The oncology unit (27%) supplies gastroenterological products and biopsy devices. Vascular products (28%) include guide wires and peripheral stents. Surgical specialties (16%) grew faster than any other business, with sales up 12% last year. Products include meshes for hernia repairs and irrigation devices for orthopedic procedures.
Conclusion
“Bard’s strong cash flow supports stock buybacks, which lowered the share count nearly 6% in 2010 and 14% over the last four years. Shares have risen 5% so far this year, reaching their highest level since September 2008. Yet the stock’s trailing P/E of 17 is 16% below its five-year average P/E and 11% below the average health-care- equipment stock in the S&P 1500 Index.”
Richard J. Moroney, CFA, Dow Theory Forecasts, 3/7/11
