We expect strong revenue growth in the first half of FY21, driven by high demand for COVID-19-related testing solutions that run on BD’s diagnostic platforms. We also look for stronger revenue growth in the Medical and Interventional segments in 2H21 as hospital utilization and procedural volume return to more normal levels. In addition, we expect sales to benefit from new product launches and tuck-in acquisitions. Although COVID-19-related tailwinds will subside in the second half of the fiscal year, we believe that the company has solid growth prospects in its medication management, diagnostics, biosciences and interventional end markets.
BD faced both headwinds and tailwinds from COVID-19 in fiscal 4Q20, though the headwinds are expected to ease in FY21 as the company expects modest top-line growth (excluding any tailwinds related to COVID-19). It anticipates significant demand for its testing solutions, which could result in an incremental $1.0-$1.5 billion in revenue from testing equipment and assays. Including the COVID-19-related revenue, BD expects high single- to low double-digit revenue growth in FY21. That said, the bulk of the COVID-19-related revenue is expected in the first half, leading to questions about the sustainability of revenue growth in the second half of the year and subsequent quarters.
BD reported results for fiscal 4Q20 on November 5. Adjusted EPS fell 15.7% to $2.79, but topped the consensus estimate by $0.25. GAAP net income was $105 million or $0.36 per share, down from $125 million or $0.45 per share a year earlier. Revenue was $4.784 billion (+4.4% as reported and on a currency-neutral basis).
By segment, revenue in BD Medical was $2.318 billion (-4.9% operational). The utilization of medication delivery systems in hospitals and physician offices, while improving sequentially from 3Q20, remained below pre-COVID levels. Additionally, the ongoing recall of the Alaris drug infusion pump in the U.S. hurt sales in the medication management solutions category. On the positive side, the segment saw strong demand for pre-filled and safety syringes for coronavirus vaccines. BD has commitments to supply more than 800 million needles and syringes to governments and nongovernmental organizations around the world, with most to be delivered in 2021. In all, pharmaceutical system revenue grew 12.6% to $485 million in fiscal 4Q.
Revenue in the BD Life Sciences segment was $1.488 billion (+31.4%). This segment saw strong demand for COVID-19 testing on the BD Veritor Plus and the BD Max systems, partly offset by lower volumes for routine testing. Revenue in the Diagnostics category grew 97.3% to $807 million. Within Life Sciences, revenue in the Biosciences category declined 9.0% to $303 million, reflecting weaker sales of instruments and capital equipment to research centers and clinical labs. Still, reagent sales to academic labs improved sequentially.
Revenue in the Interventional segment was $978 million, down 3.5% due to lower utilization and procedural volume at hospitals. Management plans to increase R&D spending to develop new products as well as new features for existing products. It will also boost spending on tuck-in M&A.
For FY20, adjusted EPS fell to $10.20 from $11.68 a year earlier. GAAP net income was $767 million or $2.71 per share, down from $1.082 billion or $3.94 per share in FY19. Revenue was $17.117 billion, down 1.0% as reported and flat on an operational basis.
EARNINGS & GROWTH ANALYSIS
BD has established new guidance for FY21. It expects adjusted EPS of $12.40-$12.60, representing growth of 21.5%-23.5% from FY20. This includes a currency benefit of approximately 50 basis points. It also expects high single- to low double-digit revenue growth, again including a 50-basis-point currency benefit.
Based on the updated guidance, we are reducing our FY21 adjusted EPS estimate to $12.55 from $13.00. We are establishing a new FY22 estimate of $13.45.
FINANCIAL STRENGTH & DIVIDEND
We rate BD’s financial strength as Medium, the middle rank on our five-point scale. As of the end of 4Q20, the balance sheet showed a debt/equity ratio of 75.4%, down from 90.0% a year earlier. Cash flow from operations in FY20 was $3.539 billion, compared to $3.330 billion in FY19.
The company faces risks from the integration of acquired businesses, including the acquisition of C.R. Bard. With nearly half of revenue coming from overseas markets, the company also faces a range of regulatory and market risks.
In response to pricing pressures, BD is lowering manufacturing and sourcing costs. It is also adding new product features that enhance profitability.
BD Medical, BD Life Sciences, and BD Interventional.
Despite headwinds from COVID-19, we believe the company has strong growth prospects, driven by new product launches and global demand for vaccine-delivery devices, such as syringes and needles, and testing products. We also see elective procedural volume recovering, which should benefit the company’s Interventional segment. We are reaffirming our BUY rating with a price target of $275.
On December 15 at midday, BUY-rated BDX traded at $243.63, up $3.63.