Becton, Dickinson and Company (BDX), a maker of medical supplies, devices, laboratory equipment, and diagnostic products, has accrued $1.7 billion for legal and regulatory matters, including $175 million recently set aside to end an SEC investigation.

The accruals are equal to 8.4% of 2024 sales and 71.1% of operating income.

The three year old SEC probe centers on whether Becton Dikinson properly disclosed issues with its AlarisTM infusion pumps. Clearly, settlement discussions have recently become more serious as Becton set aside $25 million in the third quarter and another $150 million in the fourth quarter.

The accrual may not be enough though as Becton warned:

“...the ultimate resolution of this matter is unknown at this time, and it is possible that the amount of the Company’s liability could significantly exceed its currently accrued amount.”

Separately, Becton also revealed it had recently met twice with the Department of Justice (DOJ) about potential fraud in connection with the sales and marketing of its FloChec and QuantaFloTM devices.

Additionally, Becton estimates it’ll cost $28 million to fix quality issues with its PyxisTM dispensing equipment after it failed a recent FDA inspection.

Notably, Becton inserted new language in its latest annual report that seems to suggest regulators are scrutinizing the company’s decision not to recall products with quality issues:

“In some cases, BD may determine that an identified product issue does not require a voluntary recall action. Should a regulator disagree with such a determination, the regulator may require BD to cease marketing of and recall the device until the issue has been corrected. In addition, BD may be required to seek an additional marketing authorization prior to marketing the corrected device.”

With an Enterprise Value (EV) of approximately $82.5 billion, Becton Dickinson is priced as if it will grow annual sales to more than $50 billion, more than twice the $21.9 billion consensus estimate in 2025. To justify its current share price of $220.02 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Becton Dickinson must:

—Grow sales 10% annually for a decade, significantly faster than consensus FY25 and FY26 forecasts of 8.5% and 4.8%, respectively, and the 5-year average of 4.7%
—Immediately increase NOPAT margin to 14.5%, up from our 3-year average estimate of 12.4%
—Increase Invested Capital (IC) Turns to 0.50 from our 3-year average estimate of 0.40

Notably, Becton Dickinson’s current share price also implies the company will increase ROIC to 7.3%, up from our estimate of 5.3% in 2024 and our 3-year average estimate of 5%: