Greenbackd

The inestimable Market Folly has a wonderful post on East Coast Asset Management’s long case for Becton, Dickinson and Co. (NYSE:BDX). Jay says:

East Coast Asset Management is out with an in-depth presentation on Becton Dickinson (BDX). They lay out the bullish case for the company and assume that if you hold it for three years that an internal rate of return (IRR) on BDX if purchased now would be 17.6% annualized. … So, how do they come to this conclusion on BDX?

Let’s first start with the thesis behind this play. Anant Ahuja, Christopher Begg, and Jack McManus have laid out the model for East Coast Asset Management and point out that Becton Dickinson is a niche business with a diverse set of products aimed at capitalizing on the increasing amount of aging baby boomers. Shares have been under pressure due to concerns over exposure to Europe, weak 2009 sales, and unfavorable foreign exchange trends.

The stock currently trades at 8x EV/EBITDA, well below the historical 5 year average of 10.1x EV/EBITDA. They argue that the business has an intrinsic value of $90-95 per share, representing 35-40% upside in the stock. East Coast highlights that Becton Dickinson has an impressive past of shareholder value creation. Over the past five years, BDX has seen 23.5% ROIC, 22.2% ROE, EPS CAGR of 15.8%, and 37 consecutive years of dividend increases. Not to mention, the company has repurchased a consistent amount of shares, with $450 million allocated this year. Given that these are attributes Warren Buffett often likes to see in a business, it should come as no surprise that his Berkshire Hathaway added to its BDX position in the first quarter.

Download ECAM’s report here (.pdf via Market Folly).