In their Q3 2025 partner letter, Hinde Group introduces Becton, Dickinson and Company as their first new position since 2022, highlighting it as a special situation investment in an “almost-great business” trading at a deeply undervalued level. Hinde Group, led by Managing Partner Marc Werres and known for delivering 21.24% annualized net returns since inception in 2015, presents BDX as an example of how to deliver attractive long-term returns despite frothy equity markets and uncertain economic outlook. The letter emphasizes the firm’s focus on recession-resilient businesses with absolute value (not just relative to historically rich markets) that can deliver attractive returns even if conditions deteriorate. Hinde’s decision to invest in BDX centers on an upcoming Reverse Morris Trust transaction with Waters Corporation that will unlock meaningful value by monetizing the Biosciences & Diagnostics Solutions businesses and removing growth-related overhangs, positioning the remaining “New BD” as undervalued at less than 10x fiscal 2026 earnings.
Investment Highlight: Becton, Dickinson and Company (BDX)
Business Overview
- Global, diversified medical technology company with over $21 billion annual revenue
- Founded in 1897 as partnership selling thermometers and syringes
- Grown through product innovation, geographic expansion, and acquisitions
- Manufactures more than 45 billion medical products annually
- 90% of hospital patients encounter at least one BD product
- Revenue split: just over 50% from U.S., nearly 25% from Europe
Market Position
- Leading—if not monopoly-like—market shares in many product lines, stable for decades
- High market shares enable economies of scale in manufacturing, logistics, R&D, and sales
- Market power evident in financial metrics: 54.7% gross margin, 25.0% operating margin, 40%+ return on tangible invested capital
- Products include: peripheral IV catheters, infusion pumps, prefillable syringes, molecular testing systems, flow cytometry instruments, peripheral vascular stents, urine catheters
- Used by hospitals, doctors, life science researchers, clinical labs, pharmaceutical industry, and individuals
Performance Analysis
- Business Quality – “Almost Great”: Strengths:
- Exceptional predictability of performance
- Most revenue from low-priced, essential consumable medical supplies with stable demand
- Highly diversified by product, product type, purchaser, end user, and geography
- Recession-resilient: sailed through Global Financial Crisis, growing revenue and operating income each year 2007-2010
- High barriers to entry and entrenched market positions
- Extremely high market shares in mature product categories limit expansion
- Addressable markets expected to grow ~5% annually
- Organic revenue growth target in that ~5% range over time
- Track record at developing new products and M&A value creation not quite strong enough to be considered “abundant growth opportunities”
- Falls just short of “great business” designation due to growth limitations
- Reverse Morris Trust Transaction (Announced July 14, 2025): Transaction Structure:
- Monetizing Biosciences & Diagnostics Solutions businesses ($3.3 billion revenue, 15% of total)
- BD spinning off businesses to shareholders; spun-off entity simultaneously merging with Waters subsidiary
- BD shareholders to receive approximately 38.4 million Waters shares (~0.13 WAT per BDX share)
- BD receiving $4 billion cash funded by newly-issued debt from businesses prior to spin-off
- Total consideration: approximately $18.8 billion, or ~$65 per BDX share (at WAT price of $385.54)
- Expected close by end of Q1 2026
- Tax-efficient monetization at attractive valuation
- Life science-oriented businesses distinct from rest of BD’s medical supplies/devices
- BD stock never fully captured their value
- Removes overhang from growth concerns associated with divested businesses
- Transaction Economics:
- $18.8 billion represents 5.7x revenue and over 25x estimated after-tax net operating profit
- Highly accretive to current BDX valuation multiples
- BDX currently trading at 3.4x EV/revenue and 13.0x P/E
- Pro forma “New BD” trading at less than 10x likely fiscal 2026 EPS
- “Simply way too cheap for an almost-great business” with mid-single digit long-term growth and margin expansion opportunities
Growth Dynamics and Overhang Removal
- Biosciences & Diagnostics Solutions primary source of recent growth challenges weighing on stock
- Life science instrument demand volatile past several years, in lull since 2023
- COVID-19 created boom-bust cycle for diagnostic instruments and research tools
- Weak demand from China (second largest market) due to slowing economy, geopolitical tensions, local competition
- Government research funding cuts further pressured demand
- Fiscal 2025 organic growth: Biosciences -4.0%, Diagnostics Solutions -0.7%
- Divested businesses dragged BD overall organic growth from +3.9% to +2.9%
- “New BD” pro forma organic growth in fiscal 2025: +3.9% (below 5%+ long-term target but improving)
- Transitory growth headwinds should dissipate over coming quarters
Catalysts and Path to Fair Value
- Fair value estimate: ~$300 per share (including consideration for divested businesses)
- Primary Catalyst: Transaction completion Q1 2026
- Share Repurchases: BD repurchased $1 billion in fiscal 2026; plans to allocate at least half of $4 billion transaction proceeds ($2 billion) to buybacks; free cash flow could support additional $1-2 billion repurchases in fiscal 2026
- Management Commitment: Board and management “committed to smashing the buyback button for as long as stock remains undervalued”
- Analyst Day: Planned for 2026 to outline “New BD” strategy
- Growth Normalization: Transitory headwinds dissipating should help reach 5%+ organic growth target
- All factors should help progress toward fair valuation by end of 2027
Market Context and Investment Rationale
- First new position since 2022 amid frothy equity markets
- S&P 500 at 38.85 Shiller CAPE (99th percentile since 1881)
- BDX deeply undervalued in absolute sense, not just relative to rich market
- Recession-resilient business provides downside protection
- Should deliver attractive returns even if economic/financial conditions deteriorate
- Example of how to navigate uncertain outlook with high-quality, undervalued assets
Valuation
- Current: 3.4x EV/revenue, 13.0x P/E
- Pro forma “New BD”: less than 10x fiscal 2026 EPS
- Divested businesses valued at 5.7x revenue, 25x+ after-tax net operating profit
- Fair value including transaction consideration: ~$300 per share
- Margin expansion opportunities should boost EPS growth to high-single digits over next several years
Risks
- Transaction completion risk (regulatory approval, closing delays beyond Q1 2026)
- Integration complexity and execution risk at Waters post-merger
- “New BD” organic growth still below 5%+ long-term target (3.9% pro forma fiscal 2025)
- Mature market growth constraints limiting expansion opportunities
- Geographic concentration: over 50% U.S. revenue, nearly 25% Europe
- Hospital and healthcare spending vulnerable to economic pressures despite recession-resilience
- Tariff and trade policy uncertainty affecting medical device supply chains
- Competition intensifying in certain product categories
- Capital allocation execution risk on $2+ billion share repurchases
- Debt levels post-transaction affecting financial flexibility
- Track record on new product development and M&A value creation mixed
- Valuation catalysts (analyst day, growth normalization) timing uncertain
Other Key Points
- Special situation investment in almost-great business
- 90% of hospital patients encounter BD products annually
- Portfolio construction focused on recession-resilient, absolutely undervalued positions
- Long-term investment approach prioritizing downside protection
- Management and board alignment on capital allocation (aggressive buybacks while undervalued)
Hinde Group views Becton, Dickinson as a special situation investment in an “almost-great business” with leading market shares, 54.7% gross margins, 40%+ ROIC, and exceptional recession-resilience (grew through 2007-2010 financial crisis), currently trading at a deeply undervalued level of less than 10x pro forma fiscal 2026 earnings. The investment thesis centers on the Q1 2026 Reverse Morris Trust transaction with Waters Corporation that will monetize Biosciences & Diagnostics Solutions businesses for $18.8 billion (~$65 per BDX share) at attractive 5.7x revenue and 25x+ profit multiples, removing growth-related overhangs while the remaining “New BD” retains mid-single digit organic growth potential with margin expansion opportunities driving high-single digit EPS growth. With management committed to aggressive share repurchases ($2+ billion from transaction proceeds plus $1-2 billion from free cash flow), a 2026 analyst day catalyst, and transitory growth headwinds dissipating, Hinde sees a path to fair value of ~$300 per share by end of 2027, offering an example of how to deliver attractive returns through recession-resilient, absolutely undervalued businesses amid frothy markets and uncertain economic conditions.
