BDX Beats Q1 Estimates Amid Waters Transition, But Core Risks Unchanged

What happened

BDX reported Q1 FY26 earnings of $2.91 per share, beating the Zacks consensus estimate of $2.82. This represents a decline from $3.43 per share a year ago, underscoring persistent earnings pressure despite the beat. The release aligns with the Feb 9 closure of the Waters transaction, marking the start of the 'New BD' era aimed at portfolio simplification and capital returns. Management has committed to using $4B in cash proceeds for a $2B accelerated share repurchase and $2B debt repayment, which are critical near-term catalysts per the DeepValue report. However, the beat does not mitigate significant headwinds like tariff impacts, quantified at $90M in FY25, and recurring specified items such as remediation and legal charges.

Implication

The Q1 beat provides a temporary positive signal but fails to address deeper structural issues, including tariff volatility and recurring specified items that distort earnings. Focus now shifts to whether management can deliver on the promised $2B ASR and debt repayment in the near term, as delays would undermine the 'New BD' narrative. Any guidance miss or reset in the FY26 adjusted EPS range of $12.35-$12.65 could expose underlying operational weaknesses and trigger negative sentiment. Tariff policies are rapidly evolving, with potential for additional costs beyond current estimates, posing a direct threat to margins. Without visible progress on capital allocation and cost mitigation, the stock's re-rating potential remains limited, supporting the 'WAIT' rating.

Thesis delta

The Q1 earnings beat does not shift the investment thesis, which remains centered on the execution of capital allocation from Waters proceeds and management of recurring risks. Investors must still await concrete disclosures on the $2B ASR and debt repayment, along with updated tariff sensitivity, before reassessing the stock's attractiveness. The 'WAIT' rating holds as the beat merely confirms near-term stability without resolving core uncertainties.