Better Buy: Becton Dickinson vs. Intuitive Surgical

Increased focus on elective surgeries helped the medical devices industry rebound last year. Moreover, rising investments in R&D and integration of advanced technologies make the medical devices industry’s prospects bright.

Although the major benchmark indexes have witnessed a massive sell-off on concerns over multi-decade high inflation and the Fed’s hawkish stance, the growing demand for medical devices should help the industry dodge the uncertainties and perform steadily. Investors’ interest in this space is evident from the iShares U.S. Medical Devices ETF’s (IHI) 0.6% gains over the past week. The global medical equipment market is expected to grow at a 10.1% CAGR to reach $939.98 billion by 2026. 

Becton, Dickinson and Company (BDX), and Intuitive Surgical, Inc. (ISRG) are two prominent players in the medical devices industry. 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. It operates through three BD Medical; BD Life Sciences; and BD Interventional business segments. On the other hand, ISRG designs, manufactures, and markets the da Vinci surgical system and Ion endoluminal system and related instruments and accessories for invasive surgery.

While ISRG lost 39.2% year-to-date, BDX has risen 2.4%. Which of these stocks is a better pick now? Let’s find out.

Latest Developments

On May 12, 2022, BDX announced the U.S. launch of the new BD COR MX instrument, a new, fully automated, high-throughput infectious disease molecular diagnostics platform. The BD COR MX/PX System integrates and automates the complete molecular laboratory workflow, from sample processing to diagnostic test results for large, high-throughput labs, and eliminates the need to sort specimens. This instrument should receive rising demand from clinicians and lab technicians in the coming months.

On December 15, 2021, the U.S. Food & Drug Administration (FDA) cleared ISRG’s fully wristed, 8 mm SureForm 30 Curved-Tip Stapler and reloads (gray, white, and blue) for use in general, thoracic, gynecologic, urologic, and pediatric surgery. With a 120-degree cone of wristed articulation and a curved tip, this stapler allows different angles for surgeons to approach patient anatomy and provide better visibility during stapling procedures.

Recent Financial Results

BDX’s revenues for its fiscal 2022 second quarter ended March 31, 2022, increased 2.1% year-over-year to $5.01 billion. The company’s operating income came in at $652 million, up 50.1% from the prior-year period. While its adjusted net income increased 55.9% year-over-year to $431 million, its adjusted EPS fell 0.3% to $3.18. As of March 31, 2022, the company had $3.15 billion in cash and equivalents.

For its fiscal 2022 first quarter ended March 31, 2022, ISRG’s total revenue increased 15.1% year-over-year to $1.49 billion. The company’s non-GAAP gross profit came in at $1.04 billion, indicating an 11.9% year-over-year improvement. Its non-GAAP income from operations came in at $533.20 million, representing a 1.1% year-over-year improvement. ISRG’s non-GAAP net income came in at $413.10 million, down 3.3% from the year-ago period. Its adjusted EPS came in at $1.13, indicating a 3.4% year-over-year improvement. As of March 31, 2022, the company had $1.10 billion in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, BDX’s net income and EPS have increased at CAGRs of 21.2% and 23.8%, respectively.

BDX’s EPS is expected to increase 0.3% year-over-year in fiscal 2022, ending September 30, 2022, and 8.6% in fiscal 2023. Its revenue is expected to decline 7.8% in fiscal 2022 and rise 3.9% in fiscal 2023. Analysts expect the company’s EPS to rise at a 4.9% rate per annum over the next five years.

Over the past three years, ISRG’s net income and EPS have increased at CAGRs of 12.8% and 11.9%, respectively.

Analysts expect ISRG’s EPS to decline 0.8% year-over-year in fiscal 2022, ending December 31, 2022, and 18.3% in fiscal 2023. Its revenue is expected to grow 11.7% year-over-year in fiscal 2022 and 12.9% in fiscal 2023. Analysts expect the company’s EPS to grow at a 9.7% rate per annum over the next five years.

Valuation

In terms of forward EV/Sales, ISRG is currently trading at 11.86x, 150.7% higher than BDX’s 4.73x. In terms of non-GAAP forward PEG, BDX’s 3.41x compares with ISRG’s 3.55x.

Profitability

BDX’s trailing-12-month revenue is almost 3.4 times ISRG’s. However, ISRG is more profitable, with a 36.1% EBITDA margin versus BDX’s 26%.

Furthermore, ISRG’s ROE, ROA, and ROTC of 14.9%, 9%, and 10.1% compare with BDX’s 7.8%, 3.4%, and 4.3%, respectively.

POWR Ratings

While BDX has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, ISRG has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

BDX has been graded a B for Stability, which is in sync with its lower volatility compared to the broader market. BDX has a 0.66 beta. ISRG’s C grade for Stability is consistent with its higher volatility. ISRG has a 1.25 beta.

BDX has a C grade for Value, in sync with its slightly higher-than-industry valuation ratios. BDX’s 4.73x forward EV/Sales is 28.5% higher than the 3.69x industry average. ISRG’s D grade for Value reflects its overvaluation. ISRG has an 11.86x forward EV/Sales, 221.7% higher than the 3.69x industry average.

Of the 151 stocks in the Medical - Devices & Equipment industry, BDX is ranked #28, while ISRG is ranked #78.

Beyond what we have stated above, our POWR Ratings system has graded ISRG and BDX for Sentiment, Quality, Momentum, and Growth. Get all ISRG ratings here. Also, click here to see the additional POWR Ratings for BDX.

The Winner

Rising demand for non-elective surgeries and integration of the advanced technologies should benefit medical device stocks BDX and ISRG. However, a relatively lower valuation makes BDX a better buy now.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Devices & Equipment industry.

BDX shares were trading at $252.16 per share on Wednesday afternoon, down $5.29 (-2.05%). Year-to-date, BDX has gained 3.18%, versus a -16.06% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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