We think Becton Dickinson stock (NYSE: BDX) is currently a better pick than Union Pacific stock (NYSE: UNP), given its better prospects and comparatively lower valuation. UNP stock is trading at 7.6x trailing revenues compared to just 3.8x for BDX stock. We compare these two companies due to their similar revenue base. Although Union Pacific saw a strong rise in revenue over the last twelve months, Becton Dickinson has fared better in the long run.
If we look at stock returns, Becton Dickinson’s 14% growth is better than the 8% rise for Union Pacific over the last twelve months. This compares with 9% growth in the broader S&P 500 index. While both the companies are likely to see continued top-line expansion, Becton Dickinson is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe that BDX stock will offer better returns than UNP stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of Union Pacific vs. Becton Dickinson: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Becton Dickinson’s Revenue Growth Has Been Stronger In The Long Run
- Both companies posted sales growth over the last twelve months. Still, Union Pacific’s revenue growth of 17% is higher than 9% for Becton Dickinson.
- Looking at a longer time frame, Union Pacific’s sales grew at a CAGR of 1.0% to $21.8 billion in 2021, compared to $21.4 billion in 2018, while Becton Dickinson’s sales grew at a CAGR of 8.5% to $20.2 billion in 2021, compared to around $16.0 billion in 2018.
- Union Pacific’s revenue growth was adversely impacted in 2020 due to the pandemic, but the recovery in 2021 was strong. While automotive shipments were adversely affected due to the semiconductor chip shortage affecting the overall production, the rise in natural gas prices boded well for coal demand, bolstering the coal shipments growth for Union Pacific in 2021. The U.S. coal production is expected to see a mid-single-digit y-o-y growth in 2022, supporting its transportation demand for railroad companies. 
- Becton Dickinson’s revenue growth over the recent past has been aided by its Covid-19 diagnostic tests, along with the increased demand for its medical delivery solutions and pharmaceuticals systems, primarily pre-filled devices. Earlier this month, the company completed the spin-off of its diabetes business, which is now listed as a separate entity – Embecta (NASDAQ: EMBC) – on the Nasdaq stock exchange.
- Our Union Pacific Revenue and Becton Dickinson Revenue dashboards provide more insight into the companies’ sales.
- Looking forward, Becton Dickinson’s revenue is expected to grow at a faster pace compared to Union Pacific over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 4.0% for Union Pacific, compared to a 9.4% CAGR for Becton Dickinson, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
2. Union Pacific Is More Profitable, And It Has A Better Debt Position
- Union Pacific’s operating margin of 48% over the last twelve-month period is much better than 14% for Becton Dickinson, primarily explaining the gap in the valuation of these two companies.
- This compares with 44% and 14% figures seen in 2019, before the pandemic, respectively.
- Union Pacific’s free cash flow margin of 41% is also better than 19% for Becton Dickinson.
- Our Union Pacific Operating Income and Becton Dickinson Operating Income dashboards have more details.
- Looking at financial risk, Union Pacific’s 18% debt as a percentage of equity is lower than 23% for Becton Dickinson, while the latter’s 4% cash as a percentage of assets is higher than the 2% for Union Pacific, implying that UNP has a better debt position, but BDX stock has more cash cushion.
3. The Net of It All
- We see that Becton Dickinson has demonstrated better revenue growth, has more cash cushion, and is available at a comparatively lower valuation. However, Union Pacific is more profitable and has a better debt position.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Becton Dickinson is currently the better choice of the two.
- The table below summarizes our revenue and return expectations for Union Pacific and Becton Dickinson over the next three years and points to an expected return of 32% for BDX over this period vs. a -3% expected return for UNP stock, implying that investors are better off buying BDX over UNP, based on Trefis Machine Learning analysis – Union Pacific vs. Becton Dickinson – which also provides more details on how we arrive at these numbers.
While BDX stock may outperform UNP, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Medtronic vs. Masco.
|S&P 500 Return||0%||-5%||103%|
|Trefis Multi-Strategy Portfolio||0%||-8%||263%|
 Month-to-date and year-to-date as of 4/10/2022
 Cumulative total returns since the end of 2016