Yahoo Finance Reversing a Declining Pattern in Earnings Per Share
In this article, let's take a look at CR Bard Inc. (BCR), a $13.07 billion market cap company, which is a diversified maker of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology, and specialty surgical markets.
Growth Drivers
The company operates in a highly competitive industry and we still believe is capable of generating growth due to its new product development efforts. We are confident about new technologies that will have less invasive procedures and with lower costs. Last year, the firm invested in R&D almost $100 million more than the prior year.
Further, investing in high-growth areas seems to be the right direction. The company�s focus has been China. Also, it is heavily investing in other emerging markets, countries in Europe, Asia and Latin America, specially Brazil which is considered to be a major growth driver.
Revenues, Margins and Profitability
Looking at profitability, revenues rose by 9.59% but earnings per share decreased in the most recent quarter compared to the same quarter a year ago ($1.72 vs -$8.28). During the past fiscal year, the firm reported lower earnings of $3.68 versus $8.48 in the previous year. This year, Wall Street expects an improvement in earnings ($9.01 versus $3.68).
The gross profit margin is considered rather high; at 68.88% and it has increased from the same quarter the previous year. The net margin 8.86% is ranked higher than 82% of the 290 Companies in the Medical Instruments & Supplies industry.
Finally, let�s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
Ticker | Company | ROE (%) |
BCR | CR Bard | 15.57 |
CFN | CareFusion Corp. | 9.1 |
VAR | Varian Medical Systems Inc | 23.96 |
HOLX | Hologic Inc. | 2.56 |
STJ | St Jude Medical | 24.3 |
ZMH | Zimmer Holdings | 11.24 |
Industry Median | 8.15 |
The company has a current ROE of 15.57% which is higher than the industry median and the one exhibit by Hologic (HOLX). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Varian Medical Systems (VAR) could be the option as well as St Jude Medical (STJ). It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Year | ROE (%) |
Dec05 | 23.28 |
Dec06 | 16.83 |
Dec07 | 22.92 |
Dec08 | 21.78 |
Dec09 | 22.06 |
Dec10 | 26.62 |
Dec11 | 19.28 |
Dec12 | 28.68 |
Dec13 | 34.37 |
Dec14 | 15.13 |
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 47.5x, trading at a discount compared to an average of 45.6x for the industry. To use another metric, its price-to-book ratio of 7.3x indicates a premium versus the industry average of 3.7x while the price-to-sales ratio of 4.08x is above the industry average of 2.94x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $22.196, which represents a 17.3% compound annual growth rate (CAGR).
http://www.gurufocus.com/chart/BCR#&serie=,,id:per_share_eps,s:BCR"> src="https://gurufocus_charts.s3.amazonaws.com/1424782166562.png" />
As we can see, the company's shares have risen by 26.17% over the past year, exceeding the performance of the market.
Final Comment
As outlined in the article, the company has several long-term drivers like the new product introductions or the expansion to promising markets. We believe these strategies may boost revenues in the near future and reverse the EPS situation.
Hedge fund gurus have been active in this stock. While Paul Tudor Jones (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) have added the stock; other gurus like Robert Olstein (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Donald Yacktman (Trades, Portfolio), John Hussman (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) have sold or reduced their positions in the last quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
This article first appeared on GuruFocus.
