C. R. Bard Inc. (BCR)

The stock for C. R. Bard has recently taken a pretty big hit, which is always a good reason to initiate research into a company. The following is a short summary of my research.

Company Description

C. R. Bard, Inc. and its subsidiaries engage in the design, manufacture, packaging, distribution, and sale of medical, surgical, diagnostic, and patient care devices worldwide. C. R. Bard sells its products directly and through distributors to hospitals, individual health care professionals, extended care facilities, and alternate site facilities. The company was founded in 1907 and is based in Murray Hill, New Jersey.

In 2008, approximately 80% of their record $2.45 billion in sales was derived from products that are number one or two in their respective markets. BCR has four product divisions: vascular (15.9% annualized growth for past 5 years), urology (9.4%), oncology (18%), and surgical specialties (6.2%). Each of these divisions makes roughly equal contributions to total sales for the company.

Additionally, in October 2008, the Centers for Medicare and Medicaid Services (CMS) eliminated reimbursement to healthcare facilities for costs related to certain hospital-acquired infections (HAIs), recognizing that preventing urinary tract infections (UTIs) is better than treating them. Treatment of hospital-acquired infections (HAIs) costs U.S. hospitals more than $500 million annually and signi?cantly increases a patient’s length of stay. With the recently announced elimination of Medicare reimbursement to hospitals for the treatment of HAIs, BCR has several infection control products that are well-positioned as a means to control costs and improve patient outcomes.

A Great Company?

BCR looks like a great company based solely on its margins, returns, and balance sheet.

Current Returns

• ROA: 18.6%
• ROE: 24.33%
• ROI: 20.68%

Margins

BCR has greatly improved its margins over the past ten years. In 1998, its operating margin was 13.6% and is currently about 27%. On the other hand, net margins have been more erratic for the company, fluctuating between 10% and 21% in the past decade.

Growth

Earnings per share have grown at an annualized rate of 16.7% over the past 11 years. Book value per share has grown at an annualized rate of 17% over the same time.

Balance Sheet

BCR has long term debt totaling $150 million, which gives it a debt to equity ratio of 6.9% BCR could immediately pay off its debt immediately with the $632 million in cash sitting on its balance sheet. Alternatively, BCR could pay off its debt in less than 4 months using only its free cash flows.

Is It A Bargain?

The EPS estimate for next year is 5.55. After subtracting long term debt from cash and equivalents, BCR has $4.82 per share in cash. Subtracting this from the current price of $79.15 we get $74.33, which gives us a P/E of 13.4 (an earnings yield of about 7.5%). BCR also has a small dividend yield of 0.86%.

Using a DCF analysis, I believe BCR currently has a significant margin of safety at a price of $79.15, ranging from a 30% discount in what I believe is a worst case scenario (owner earnings growing at a 5% rate) to a 50% discount in a scenario I consider pretty reasonable (owner earnings growing at a 10% rate, slightly less than its historical rate).

Who Else Owns It?