BECKMAN COULTER INC. $66 (New York symbol BEC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 68.6 million; Market cap: $4.5 billion; Price-to-sales ratio: 1.6; WSSF Rating: Average) makes lab equipment that doctors and researchers use to detect substances in bodily fluids. Beckman gets 90% of its sales from hospitals and clinics. Research labs account for the remaining 10%.
In August 2009, Beckman paid $780 million for the diagnostic-systems business of Olympus Corp. of Japan. This was a big purchase for Beckman, which earned $233.9 million, or $3.63 a share, in 2008.
To help pay for this business, the company issued $495 million in new notes and sold $240 million of new common shares. As of June 30, 2009, Beckman’s long-term debt was just $1.3 billion (29% of market cap), so it has plenty of room for further borrowings.
These new operations will increase Beckman’s market share and geographic presence. They will also add $500 million to its annual revenue of $3.1 billion. Moreover, closing overlapping sales and research functions should save Beckman $60 million a year.
Diagnostic systems generate higher profit margins for Beckman than research-lab equipment, so this purchase should help it keep increasing its earnings. As well, every time Beckman sells a new system, it gets a new customer for its supplies and maintenance services. Sales of these supplies account for roughly 80% of the company’s revenue. This cuts its risk.
The stock has nearly doubled since it fell to $36 in December 2008. Despite the big rise, it still trades at a reasonable 16.9 times the $3.90 a share that Beckman will probably earn this year. The $0.68 dividend yields 1.0%.
Beckman Coulter is a buy.
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