Baxter International (BAX) shares popping from bullish flag consolidation

In the business world, innvoation 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 company. 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. Boston Scientific (NYSEL: BSX) is a major competitor.

Investors were pleased last week, when Citigroup upgraded the shares from "hold" to "buy." Analyst Matthew J. Dodds said the firm can increase its gross margins above Wall Street expectations, a welcome prediction ahead of the Baxter's fourth quarter report (1/24). He also predicted 2008 EPS of $3.21, versus the Street expectation of $3.10.

BAX shares popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, the price appears to be in the process of executing that breakout.

Altogether, brokers now recommend the shares with five "buys" and four "holds". Analysts expect a 14% average annual growth rate, through the next five years. The BAX 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% 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 $47.20 and $65.20. A stop-loss of $56.25 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.