Becton Dickinson & Co. (BDX, 4% of assets)

Becton Dickinson is one of the world’s leading manufacturers and suppliers of medical devices, medical technology products, life science research tools, needles and syringes, and pharmaceutical systems. The company manufactures over 45 billion devices and consumables annually, owns about 29,000 active patents, spends over $4 billion annually on R&D, and enjoys number one market positions in the majority of its product sets. The company’s dividend has increased consecutively for 51 years, ranking Becton as an S&P 500 “Dividend Aristocrat.” Under the guidance of CEO Tom Polen, Becton is investing heavily in healthcare’s digital transformation. In 2022, management launched 25 key new products, including solutions in smart, connected care and automation technology to address productivity, efficiency, and clinician burnout. Becton also spun off its Diabetes Care business, which now trades as Embecta (EMBC). The spin-off, which reduced revenues for fiscal year 2022 by over $1 billion, was part of a commitment to three strategic pillars: “Grow, Simplify, and Empower.” Becton’s debt was upgraded by Moody’s and Fitch, reflecting Becton’s strengths across end-markets, and its power in commercial reach, value propositions, solid free cash flow generation, and operational excellence.
Becton Dickinson was founded in 1897 by Maxwell W. Becton and Farleigh S. Dickinson, who sold medical thermometers and syringes imported from Europe. In 1904, they acquired the Philadelphia Surgical Co. and Wigmore Co., manufacturers of surgical, dental, and veterinary instruments. This was the beginning of 119 years of astute acquisitions. In the past eight years, Becton has completed two transformative acquisitions, each adding $4 billion in revenues: CareFusion in April 2015 at a cost of $12.2 billion and C.R. Bard in September 2017 for $24.2 billion. Both leveraged Becton’s strengths in medication management and patient safety solutions, increasing the company’s ability to innovate, improve patient outcomes, reduce care costs, and expand access. At the time of the merger, CareFusion held about 70% of the U.S. medication dispensing market. The merger of C.R. Bard, two years later, focused on four segments, vascular, urology, oncology, and surgical, as well as cardiovascular and infection prevention. Prior to the merger, Stone Run Capital Partners had owned C.R. Bard since December 2009. The investment generated a very rewarding 13% annually for over seven years until the Becton merger. C.R. Bard’s legacy was world-class clinical solutions and treatments for peripheral vascular disease, urology, hernia, and cancer.

Combining C.R. Bard’s clinical focus with Becton’s sophisticated process improvement created a major medical technology leader. Thanks to Becton’s strong free cash flow and the debt upgrade in fiscal year 2022, Becton is well on its way to regaining solid financial status after these significant and expensive acquisitions.


Covid and its aftermath, from 2020 to 2023, have been volatile years for medical technology and life sciences. The effect on Becton’s top and bottom lines is clearly visible; revenues, operating margins, and profits have yet to return to 2021 levels. Additionally, the FDA’s 2020 recall of the Alaris infusion pump undermined expected revenues and profits from the CareFusion transaction. This year, Becton is seeing better sales, and significantly, the FDA just last week provided clearance to an updated Alaris system. The Alaris infusion system is the only modular and most comprehensive infusion system on the U.S. market. It includes large volume pumps, syringe pumps, patient-controlled analgesia pumps, respiratory monitoring, auto-identification, and dose error reduction software. Becton continues to advance its business model through acquiring new companies. On June 6th, 2023, it announced an agreement to buy privately held Parata Systems for $1.5 billion in cash. Parata has $220 million in revenues and will enable Becton’s entry into the $600 million U.S. pharmacy automation market.


Presently, management forecasts revenues of approximately $19.2 billion for the September 2023 fiscal year, followed by an estimated $20.3 billion in fiscal year 2024. EPS should approach $12.20 this September and increase to about $13.50 next year. Free cash flow is estimated to be over $4 billion annually before divestitures, and the company has substantially reduced the debt raised to acquire CareFusion and C.R. Bard. Becton is trading at 16-times estimated EBITDA and 19-times EPS for fiscal year 2024, reasonable valuations for a high-quality company with a history of innovation and growth. Management is building on its strong record of execution and accelerating into higher growth areas of healthcare. EPS is regaining momentum. Management is confident that they can sustainably increase revenue growth, expand operating margins, and deliver double-digit EPS growth. We agree.


Corning, Inc. (GLW, 1.5% of assets)


Corning is a leading innovator in materials science. It has brought to market numerous successful products since its founding as a glass business in 1851. We believe Corning’s earnings power could see solid improvement during the next several years. The company’s domination of the smartphone cover glass market, and its leadership in the innovation and manufacture of fiber optic cables for 5G buildouts, are both important revenue and profit drivers for its two largest businesses, Display Technology and Optical Communications. Management seeks to leverage predictable and sustainable secular trends. Corning’s CEO, Wendell Weeks, commented at a recent investor conference: “Near term, despite the fact that most of our end-markets are depressed, we expect profitability and cash flow to improve. We’re raising prices, restoring our traditional productivity ratios, and bringing down inventory. Longer term, we feel really good about our growth portfolio, whether in automotive, cloud compute, broadband, 5G, solar, pharmaceutical packaging, and next-gen displays, or in cover materials, augmented reality, and semiconductors.” We agree and view the stock’s valuation of roughly 14-times and 13-times estimated 2024 and 2025 EPS as compelling. The stock yields 3.4%, and Corning’s market price has declined about 23% from its 2022 high.

The company’s expertise in glass and ceramic science and optical physics, along with its deep manufacturing and engineering know-how, led to its invention of low-loss optical fiber in 1970, cellular ceramic substrates in 1972, and Gorilla Glass in 2006. At the time, Apple’s then CEO Steve Jobs gave the firm six months to design a cover glass for the first iPhone—which it did. Today, Gorilla Glass dominates the smartphone cover glass market. Corning is the leading

manufacturer of fiber optic cables for the telecommunications industry and is heavily involved in supplying fiber optic cable for 5G buildouts to U.S. network carriers. Corning’s cellular ceramic substrates are the heart of the catalytic converters that reduce gasoline and diesel exhaust pollution from automobiles, buses, and trucks. Broadband, 5G, and cloud computing will all be key growth drivers for Corning in the next decade. Corning’s products are also a longstanding staple of pharmaceutical lab research. Corning Pyrex culture vessels were instrumental in such medical breakthroughs as Penicillin and the polio vaccine. The Pyrex brand continues to be recognized as premier quality for life sciences research. The company benefits from the competitive advantages created by a centralized annual billion-dollar R&D program that covers all business segments. Corning has deep relationships with customers who are global leaders in their industries and its business segments possess an extensive portfolio of patents on products, technologies, and manufacturing processes. Corning’s 124 plants in 15 countries generated $14.8 billion in revenue last year. Structurally, Corning operates in five business segments plus the Hemlock Semiconductor Group (HSG) and Emerging Growth Businesses (EGB). We review the segments below.


Optical Communications: ($5 billion in 2022 revenues, 34% of total revenues, and 9% ten-year compound annual revenue growth rate, or CAGR) Since 1970, Corning has developed and manufactured optical fiber, cable, and connectivity solutions for long-haul, fiber-to-the-home, and other communications networks, including patented ultra-bend cable, fiber optic connectors, couplers, and other accessories.


Display Technologies: ($3.3 billion, 22% of total, 1% CAGR) This segment is the largest global producer of glass substrates for flat panel displays, including liquid crystal displays (LCDs) and organic light-emitting diodes (OLEDs), which are used in televisions, laptops, mobile devices, and desktop monitors.

                                                                                                                                                                                                                                                                                                                      
Specialty Materials: ($2 billion, 14% of total, 4% CAGR) Specialty Materials provides over 150 material formulations (shaping, coating, finishing, etc.) for glass, glass ceramics, and crystals for precision measurement (metrology) instruments and software. These products include Gorilla Glass, semiconductor high performance optical materials, and radiation shielding products (manufactured in France).


Environmental Technologies: ($1.6 billion, 11% of total, 5% CAGR) Environmental Technologies manufactures ceramic substrates and filter products for emissions control in mobile applications globally. It continues to develop more effective and durable products for gasoline and diesel applications.


Life Sciences: ($1.2 billion, 8% of total, 6% CAGR) Life Sciences leverages its expertise in materials science, polymer surface science, cell culture, and cell biology to provide productivity solutions and enable research for traditional small molecule (chemical) drugs and vaccines as well as emerging cell and gene therapies.


Hemlock Semiconductor Group and Emerging Growth Businesses: ($1.7 billion, 11% of total, 75% CAGR) Corning gained a controlling interest in HSG in the third quarter of 2020. HSG is a leading provider of high-purity polysilicon products for the solar power and electronics industries. Polysilicon is necessary to produce sustainable solar power cells, panels, and arrays, and to create the fabricated wafers and integrated circuit chips used by leading semiconductor manufacturers. EGB includes the pharmaceutical technologies business, which produces high-quality pharmaceutical glass tubing and vials to meet the rigorous needs of the pharmaceutical industry, as well as Corning’s automotive glass business, which enhances vehicle interiors and exteriors with innovations that enable lightweight, damage-resistant windows and displays.


Corning’s large scale manufacturing facilities and experience, fiber process, technology leadership, and intellectual properties provide solid competitive advantages based on product quality, global distribution, supply chain efficiency, a broad product line, technical support, and superior product attributes. We believe Corning management has many levers it can pull to enhance its growth in the next decade, and we have initiated an investment position in the company.