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H # >( " & # I ( # #! )5 .5 #;F 3, # ! )10 & # ,3! 47 5 8 I # - # # ! 15 )5 2 #!;F) "# ! # ! " ) "# #$I > # 3 ! - # # ! # ' 7$ 8;G($> ; # "# !# #I "# "< "+" I,- ! 4)$F)>'-( # 2 Risk Reward – Becton Dickinson (BDX.N) Becton Dickinson: Path Less Clear, but Relatively Resilient PRICE TARGET $262.00 EQUAL-WEIGHT THESIS Our price target of $262 for BDX is based on a ~16x multiple off of our base case CY21e ▪ Sustainability of growth profile & EBITDA, largely in line with large cap peers. Organic growth sustainability emerges in line potential for 5%+ long-term growth with long term plan during FY21 as new products ramp (that partially offset China & pump ▪ As we head into the last year of the deal noise prior to stabilization), and cost programs gain traction. Bard synergies and integration model, Bard remains a meaningful driver of are on track. Durability of COVID testing in focus. margin improvement, and a lever for growth $275.31 acceleration supported by EM penetration Consensus Price Target Distribution $255.00 $300.00 ▪ More aggressive action on costs may MS PT accelerate gains (Project Recode) Source: Thomson Reuters, Morgan Stanley Research Mean Morgan Stanley Estimates ▪ Positive offsets (testing and vaccines to a lesser extent) in addition to relative COVID- 19 resilience RISK REWARD CHART AND OPTIONS IMPLIED PROBABILITIES (12M) Consensus Rating Distribution USD 65% Overweight 35% Equal-weight 400 0% Underweight MS Rating $298.00(+27.00%) $298.00(+27.00%) (+27.00%) Prob (>298.00)~15.6% Source: Thomson Reuters, Morgan Stanley Research 300 $262.00(+11.66%) $262.00(+11.66%) (+11.66%) Prob (> 262.00) ~33.6% $234.65 Risk Reward Themes 200 Regulation: Positive $188.00(-19.88%) $188.00(-19.88%) (-19.88%) Prob (<188.00)~23.7% View descriptions of Risk Rewards Themes, here 100 0 NOV '19 MAY '20 NOV '20 NOV '21 Key: Historical Stock Performance Current Stock Price Price Target Source: Thomson Reuters, Morgan Stanley Research, Morgan Stanley Institutional Equities Division. The probabilities of our Bull, Base, and Bear case scenarios playing out were estimated with implied volatility data from the options market as of 05 Nov, 2020. All figures are approximate risk-neutral probabilities of the stock reaching beyond the scenario price in either three-months’ or one-years’ time. View explanation of Options Probabilities methodology, here BULL CASE $298.00 BASE CASE $262.00 BEAR CASE $188.00 ~17.5x Bull Case CY21e EBITDA 16x Base Case CY21e EBITDA 13x Bear Case CY21e EBITDA COVID recovery and offsets exceed Organic growth sustainability becomes more COVID impact greater than expected; time expectations. Better pipeline execution evident as new products ramp, and cost to recovery slower. Durability of testing drives organic sales acceleration while Bard programs gain traction. Bard synergies and shorter. Pump issues remain unresolved drives additional growth in the high single integration are on track. The BD/Bard deal beyond expected timelines. Poor execution digits. BD delivers synergies materially model drives mid-teens underlying EPS on cost initiatives and additional price above forecasts and ahead of schedule. growth. pressures limit margin expansion. Capital deployment drives upside. 3 Risk Reward – Becton Dickinson (BDX.N) KEY EARNINGS INPUTS Drivers 2019 2020e 2021e 2022e Organic Growth (%) 5.1 (0.0) 12.5 (0.6) Gross Margin (%) 56.1 54.5 57.9 57.4 Operating Margin (%) 25.3 23.2 25.8 26.2 EPS ($) 11.69 10.18 12.66 12.97 INVESTMENT DRIVERS RISKS TO PT/RATING MS ESTIMATES VS. CONSENSUS Key product launches / ramps RISKS TO UPSIDE FY Sep 2020e EM represents around ~15% of sales but may FDA resolution of Alaris resulting in positive drive up to 1/3 of growth and accelerating impact on results Sales / profitability. Double digit growth is likely Positive BTK updates Revenue 16,763 17,117 required to exceed guidance Durability of testing exceeds expectations ($, mm) 16,816 Bard synergies could drive meaningful growth Synergy realization greater and ahead of acceleration schedule RISKS TO DOWNSIDE EBIT 3,767 3,979 Integration lags and promised synergies fail to ($, mm) GLOBAL REVENUE EXPOSURE 3,888 materialize APAC, ex Japan, Mainland Prolonged FDA process w. no resolution in 0-10% China and India sight EPS 0-10% India Competitive pressures in EM mount 9.80 10.18 ($) 0-10% Japan New product launches trail expectations 9.93 0-10% Latin America COVID impact exceeds expectation 0-10% MEA 0-10% Mainland China Net income 0-10% UK OWNERSHIP POSITIONING ($, mm) 2,762 2,879 2,801 10-20% Europe ex UK Inst. 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