Baxter International vs. Becton Dickinson: Which Medical Equipment & Supply Stock is a Better Buy?

Baxter International Inc. (BAX) develops and provides a portfolio of healthcare products worldwide. The company offers peritoneal dialysis and hemodialysis and additional dialysis therapies and services. It also provides renal replacement therapies and other organ support therapies focused in the intensive care unit. On the other hand, Becton Dickinson and Company (BDX) develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products for healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry, and the general public worldwide.

The COVID-19 pandemic-led awareness about health and hygiene has driven the demand for medical equipment & supplies across the world. In addition, with the rising prevalence of chronic diseases and the geriatric population, the need for healthcare products is further increasing. Moreover, increased investments, rising hospital-acquired infections, and a growing shift to home-based settings will likely boost the medical equipment & supply market’s growth in the upcoming years. According to a report by Valuates Reports, the global medical supplies market is expected to grow at a 7.1% CAGR from 2022 to 2028. Therefore, both BAX and BDX should benefit.

BAX has gained 8.5% over the past three months, while BDX has returned 7.2%. Also, BAX’s 4.1% gains over the past six months are significantly higher than BDX’s 0.9% returns. Moreover, BAX is the clear winner with 10.6% gains versus BDX’s negative returns in terms of the past year’s performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On December 13, 2021, BAX announced that it had completed its acquisition of Hillrom. José E. Almeida, BAX’s chairman, president, and CEO, said, "The Baxter-Hillrom combination unlocks the next phase of our transformation, presenting a new wave of potential to drive greater impact for patients, clinicians, employees, shareholders, and other communities we serve worldwide."

On January 7, 2022, BDX announced that it had received 510(k) clearance from the U.S. Food and Drug Administration for the BD Kiestra IdentifA system, which is designed to automate the preparation of microbiology bacterial identification testing. Brooke Story, president of Integrated Diagnostic Solutions for BD, said, "Our 'discovery to diagnostics' strategy positions us to provide best-in-class solutions at every point along this continuum."

Recent Financial Results

BAX’s revenue increased 9% year-over-year to $3.20 billion for the fiscal third quarter ended September 30, 2021. The company’s adjusted operating income grew 14% year-over-year to $652 million, while its adjusted net income came in at $516 million representing a 20% year-over-year increase. Also, its adjusted EPS came in at $1.02, up 23% year-over-year.

BDX’s revenues increased 7.3% year-over-year to $5.10 billion for the fiscal fourth quarter ended September 30, 2021. The company’s operating income grew 94.6% year-over-year to $495 million, while its net income came in at $265 million representing a 107.5% year-over-year increase. However, its adjusted EPS came in at $2.59, down 7.2% year-over-year.

Past and Expected Financial Performance

BAX’s revenue and EPS grew at CAGRs of 4% and 7.2%, respectively, over the past three years. Analysts expect BAX’s revenue to increase 30.2% for the quarter ending March 31, 2022, and 27.9% next year. The company’s EPS is expected to grow 28.9% for the quarter ending March 31, 2022, and 21.9% next year. Moreover, its EPS is expected to grow at a rate of 11.2% per annum over the next five years.

On the other hand, BDX’s revenue and EPS grew at CAGRs of 8.2% and 125.2%, respectively, over the past three years. The company’s revenue is expected to decrease 2.9% for the quarter ending March 31, 2022, but will increase 5.2% next year. Its EPS is expected to decline 8.8% for the quarter ending March 31, 2022, but grow 10.1% next year. BDX’s EPS is expected to grow at a rate of 9.1% per annum over the next five years.

Profitability

BDX’s trailing-12-month revenue is 1.63 times what BAX generates. BDX is also more profitable with a gross profit margin and net income margin of 47.29% and 10.33% compared to BAX’s 40.49% and 9.75%, respectively

However, BAX’s ROE, ROA, and ROTC of 14.06%, 6.21%, and 7.99% are higher than BDX’s 8.82%, 3.90%, and 5.02%, respectively.

Valuation

In terms of forward non-GAAP PEG, BDX is currently trading at 5.87x, 210.6% higher than BAX’s 1.89x. Moreover, BDX’s forward EV/S ratio of 4.56x is 25.3% higher than BAX’s 3.64x.

So, BAX is relatively affordable here.

POWR Ratings

BAX has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. On the other hand, BDX has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

BAX has a B grade for growth, consistent with analysts’ expectations that its EPS and revenue will increase in the upcoming months. On the other hand, BDX has a C grade for growth, in sync with analysts’ expectations that its EPS and revenue will decline in the near term.

Of the 164 stocks in the Medical - Devices & Equipment industry, BAX is ranked #6. In comparison, BDX is ranked #49.

Beyond what I’ve stated above, we have also rated the stocks for Momentum, Quality, Value, Stability, and Sentiment. Click here to view all the BAX ratings. Also, get all the BDX ratings here.

The Winner

As the demand for advanced medical equipment grows, both BAX and BDX are expected to gain. It is better to bet on BAX now because of its robust financials, lower valuation, and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Medical - Devices & Equipment industry here.

BDX shares were trading at $253.09 per share on Monday afternoon, down $2.64 (-1.03%). Year-to-date, BDX has gained 0.64%, versus a -6.03% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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