Becton Dickinson & Co

Becton Dickinson reported third-quarter fiscal 2026 results with sales up 5.4%. Management guided for sales growth toward the higher end of its initial range and raised the midpoint of its adjusted diluted EPS guidance to $12.62-$12.72, up from $12.52-$12.72.

Why it matters: BD reported solid sales growth across all segments, reinforcing our thesis that the worst is now behind the company, underpinned by high-single-digit sales growth across the majority of the business and continued market share gains for its Alaris platform. We are encouraged by double-digit growth in both PureWick and advanced tissue regeneration, alongside oncology growth being driven by the launch of a new system, collectively underscoring the interventional segment's strong market position. Despite continued softness in the vaccine market, strength in biologics is driving Biopharma Systems' growth, underpinned by BD's GLP-1 exposure. We expect this to be further supported by the company's roughly 100 newly signed GLP-1-related agreements.

The bottom line: We maintain our $225 fair value estimate for narrow-moat Becton Dickinson. We retain our estimates as results align well with our expectations. Shares screen as undervalued. We keep our forecasts unchanged, expecting BD to grow sales by roughly 4% through our forecast period, translating into 7% adjusted EBITDA growth, driven by pipeline development, its strong footprint in the operating room, and tailwinds from injectables. While we agree with the market that strong organic sales growth is key for BD to recapture investor confidence, we believe the company delivered on this front in the third quarter. We believe the results should pave the way for some rerating of the share price.

Our fair value estimate is $225 per share for the post-life sciences BD. Our total business growth forecast remains below BD’s revised target of 5.5%, reflecting ongoing growth challenges in China as well as a spotty track record. We remain positive on the company’s pharmaceutical and interventional business.

In the core medical business, we are seeing the effects of BD's investment in research and development, with the pipeline the strongest it's been in a long time. There are now several business lines that are growing in high single digits and still have a long growth runway, such as pharmaceutical delivery devices. The firm is also expanding its presence in informatics, which historically hasn't been its core focus. Device interconnectivity is an important pillar of BD's new strategy, in which it aims to control a larger portion of the care continuum. Disease management, particularly in areas like diabetes where BD has always been strong, is an attractive opportunity, both in the developed world and in emerging markets. Alaris has recovered all of its lost position, though the company will likely face challenging comparisons in the next year-plus in infusion pumps as a result of its strong uptake.

China's constrained spending is a major headwind. We previously assumed a Chinese demand recovery in 2026 and a return to more normalized growth in the following years. Now, we think the growth recovery is more elusive.

BD's emphasis on profitability should allow it to expand its operating margin, although we don't incorporate a sizable margin boost from normalized levels, surpassing its 10-year historical margin by roughly 1.2% in the long term. Near-term margins are being pressured by higher input costs and tariffs.

We assign BD a narrow Morningstar Economic Moat Rating. One element that sets BD apart from most medical-device companies is that it is essentially a consumables business. The vast majority of BD's revenue is recurring, though this isn't razor/blade but rather just 40 billion-plus different blades. Most of the products are of a critical variety—a typical operating room cannot function without them—and the vast majority are very low-cost consumables consumed in large volumes and largely automatically reordered. Given the critical nature (can't run out of syringes) yet low price point of the products, hospitals aren’t likely to go through frequent requests for proposal with vendors, especially when only a few vendors can be counted on for nearly all operating room needs across an entire hospital network. That doesn’t necessarily mean BD is irreplaceable, though its reputation and scale assure a safe supply and typically lead to long-duration relationships.

BD Medical Essentials

The company’s 100-year-plus history and the foundation of its moat originate in the medical essentials segment, which is roughly one-third of total sales. This segment has a narrow moat, due primarily to intangible assets and switching costs.

BD made a name for itself manufacturing basic surgical instruments like needles, syringes, and scalpels. It’s difficult to be considered an innovator in a largely commoditized industry, so BD's value-add is largely attributable to the mission-critical nature of its routine products and its reputation as a reliable vendor.

Despite being largely a price-taker, BD Medical’s margin has been fairly resilient, which we attribute to the essential yet minuscule-price nature of the company’s products (which inhibits switching) and the company’s dominant positioning in this niche (which gives it a scale advantage). While a few competitors exist among the large medical technology firms (B. Braun), for most of them, surgical sharps/syringes represent only a small portion of revenue. Most of the competition is small and localized. BD has a significant manufacturing footprint across the globe, allowing it to compete with local manufacturers effectively and maintain a roughly 20% margin in a commoditized industry. Further, the ordering process is extremely simplified and renders switching highly unlikely.

BD Connected Care

The connected care segment includes medication management, with the core lines of infusion pumps and medication-dispensing products. The infusion market is an oligopoly. New or smaller entrants have a hard time contending because of established players' scale, breadth of product offerings, and practitioner stickiness due to the interconnectedness of devices. Once hospitals are familiar with a particular brand of device, they rarely switch, thanks to retraining costs as well as product and process familiarity. BD, with a large installed base of pumps, enjoys low customer turnover and a stream of recurring revenue from associated disposables over the long operating life of their devices. BD is a market leader in pumps, with Baxter, ICU Medical, and B. Braun being other major competitors. The stickiness of the market share in pumps is evidenced by the recall of the Alaris platform, which effectively removed BD entirely from the US market for three-plus years. Despite this recall, we didn’t see a significant uptick in peers’ market share, and Alaris has already largely recaptured its lost positioning.

Greater switching costs come from the entire offering to the operating room (spanning all of the medication delivery and medication management businesses). The one-stop shop vendor approach, coupled with the interconnectedness of all aspects of medication delivery and administration, leads to switching costs.

We view BD's consolidation of advanced patient monitoring solutions under the same segment as its medication management systems as a strategic positive. We expect this unification to sharpen the segment's focus on digital health offerings, fostering synergy between monitoring tools and infusion technologies like Alaris pumps, which integrate seamlessly with BD's broader medical products to ultimately enable closed-loop care. We believe such integration locks in customers, particularly in high-stakes clinical environments where switching risks failure with severe consequences. We expect centralized management to improve operational efficiencies across research and development, sales, and service.

BD Interventional

The interventional segment has dug a narrow moat through its diverse portfolio of differentiated products and the patents that protect its innovations. In the peripheral vascular segment, where BD has a number-one global position, the ability to make meaningful innovations to its key products, such as the Foley catheter, has allowed the firm to stave off pricing pressure and maintain its presence on the equipment shelf. Bard had historically strengthened its narrow moat through its relationships with practitioners in the vascular, surgical, urology, and oncology areas. Through these ties, BD seeks to cultivate physician preference for its products. BD holds the top market share in hernia repair, biosurgery, and urology.

BD Biopharma Systems

BD's biopharma segment focuses on parenteral drug delivery solutions tailored for pharmaceutical and biotech partners. It currently plays a relatively minor role in generating overall sales. However, we expect it to emerge as a key growth driver benefiting from surging demand for GLP-1 therapies, with BD’s contract pipeline underpinning our growth assumption.

The pharmaceutical business is the star of BD's portfolio. We expect robust growth to continue, driven by demand for injectables such as GLP-1s.

BD has a number of highly successful product launches in surgery and urology. These segments have been a positive surprise for the company, generating strong growth and profitability.

We estimate Alaris sales have now exceeded prerecall levels. BD's position in infusion pumps is excellent.

BD's China segment is facing competitive bidding challenges, which continue to pressure overall growth in the country.

BD is operating in a challenging near-term macro environment as hospitals appear to be deferring capital expenditure decisions. This softer end-market demand could delay the company’s growth trajectory and weigh on margins in the short term.

BD has not had a surprise-free year in a while, which is suppressing investor sentiment.