Until last week, Quidel (QDEL) and Becton, Dickinson (BDX 0.42%) were the only two healthcare companies to have federal emergency authorization from the U.S. Food and Drug Administration (FDA) to provide COVID-19 rapid-response antigen tests. The antigen tests provide quicker responses than PCR molecular tests, which must be sent to labs to be processed, but the former are considered less accurate. They recognize proteins from the SARS-CoV-2 virus to show whether a patient is infected with COVID-19.
Now others are entering the rapid-response antigen test fray, with LumiraDx getting approval from the FDA for its test on Aug. 19 and Abbott Laboratories (ABT 1.91%) getting approval for its test on Wednesday. With competition on the way, is Quidel or Becton, Dickinson a better buy?
To determine that, you need to determine which of the two companies is in the strongest position moving forward, regardless of their COVID-19 tests.
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Coronavirus has hurt Becton, Dickinson's sales overall
Becton, Dickinson (BD), a 123-year-old global medical technology company headquartered in Franklin Lakes, N.J., made a record $17.3 billion in revenue last year. That momentum has stalled this year, however -- along with its share price, which is down more than 6% year to date.
Despite increased sales from its two COVID-19 testing platforms (it also produces a system that does PCR tests), overall sales for the company were down a reported 11.4% year over year in the third quarter. The company's own guidance shows that revenue for the year will likely be down 2.5% to 3%.
The company operates in three segments: medical, life sciences, and interventional. The life sciences segment is the only one of the three that was affected beneficially by the coronavirus, because it includes the company's diagnostic systems. Through the nine months ended June 30, the segment's sales were a reported $3.1 billion, an increase of 0.7% year over year.
BD's dividend, which it has raised for 48 consecutive years (including a 2.6% raise this year, resulting in a quarterly payout of $0.79), appears safe. Its yield is 1.24%, less than the S&P 500's average of 2%, but the payout ratio is a sustainable 32%, a plus for long-term investors.
COVID-related sales have boosted Quidel's bottom line
Shares of Quidel are up more than 197% so far in 2020. The company, based in San Diego and founded in 1979, reported a second-quarter earnings rise of 86% year over year, but more than half of Q2 sales were related to its COVID-19 products ($109 million of $201.8 million in revenue). That rise in revenue propelled the company's net income to $67.7 million, a huge jump over the $1.3 million it had in the same quarter last year.
To be fair, the company may not be as reliant on COVID-19 sales as it appears. Its cardiac immunoassay, used to help diagnose and assess critical care issues including congestive heart failure, was its biggest revenue driver last year, bringing in $266.5 million. But in the second quarter of this year, revenue from those tests was down 20% year over year, which the company attributed to fewer hospital visits by non-COVID-related patients. Quidel came into the year with three consecutive years of revenue and net income growth.
This may be one time to go against the crowd
Quidel clearly has the most to lose from more antigen test competition. While the number of coronavirus tests needed isn't likely to decline any time soon, having more competitors in the space will more directly impact Quidel than BD, which has a broader line of products. Too much of Quidel's revenue growth this year has been tied to its coronavirus tests.
Another concern for Quidel has to do with an effective coronavirus vaccine: If one is found, that would put a huge dent in the need for COVID testing.
I think Becton, Dickinson is a better buy in the long term. As the coronavirus pandemic subsides and more nonessential surgeries and medical procedures are performed, the company's sales will rise. Both Becton, Dickinson and Quidel may be overpriced, but Becton, Dickinson is less so because it has more reliable revenue streams.
