In the business world, innovation leads to longevity. There is a medical products firm in Deerfield, Illinois, that was the first manufacturer of commercially prepared intravenous solutions. It was also responsible for such landmark developments as the first container that could store blood for more than a few hours, the first means of separating plasma from whole blood and storing it for future use, and the first disposable total-bypass blood-oxygenator. The company has been in business for 76 years.
Baxter International (NYSE: BAX) is a diversified medical products and services firm. It provides devices, pharmaceuticals, and biotechnology for the treatment of hemophilia, immune disorders, cancer, infectious diseases, kidney disease and trauma. The BioScience segment manufactures plasma-based therapies for immune disorders, biosurgery products for hemostasis, and vaccines. The Medication Delivery unit makes intravenous solutions and administration sets. The Renal segment manufactures products for peritoneal dialysis, a home therapy for people with end-stage renal disease. The company has more than 250 facilities in 50 countries around the world. Boston Scientific (NYSE: BSX) is a major competitor.
The Street was surprised last week, when the firm reported Q3 EPS of 70 cents and revenues of $2.75 billion. Analysts
had been looking for 66 cents and $2.68 billion. Baxter repurchased about $827 million in shares, during the quarter. Management also guided Q4 EPS to 72-74 cents, versus Street consensus of 71 cents. Bear Stearns subsequently reiterated its "outperform" rating on the issue and boosted its price target to $68. The stock popped on the news and then passed into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Altogether, brokers recommend the shares with one "strong buy," four "buys" and four "holds." Analysts expect a 13% average annual growth rate through the next five years. The BAX Price to Sales ratio (3.41), Price to Cash Flow ratio (16.80), EPS Growth rate (22.81%), Operating Margin (18.88%), Net Profit Margin (15.08%), Return on Assets (11.83%), Return on Investment (15.51%) and Return on Equity (26.30%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 85 percent of the outstanding shares. The stock is one of those used to calculate the S&P 500 and S&P 100 Indexes. Over the past 52 weeks, it has traded between $43.38 and $60.98. A stop-loss of $50.90 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
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