Baxter is one company that's on the mend

Posted Mar 13th 2009 10:30AM by Joseph Lazzaro
Filed under: Baxter Intl (BAX), Stocks to Buy

The Dow's difficult start in 2009, following on the heels of 2008's awful performance, has done little to attract new money into the market. And neither has the U.S. economy, which remains entrenched in a pronounced recession, with few signs that it's bottomed.

The economic conditions invalidate most sectors, but there are a few that offer promise. One is health care, which is why Baxter International (NYSE: BAX) is worth a review.

Baxter makes a variety of medical products across three divisions, including drugs and vaccines, dialysis equipment, and IV supplies. Overall 2009 revenue should increase 2-4%, led by demand for recombinants, plasma proteins, and antibody therapies in its bioscience unit. Slower growth is seen in its medication delivery and renal care units, but Baxter has done a good job focusing on high-margin businesses, divesting low-margin lines, and eliminating excess manufacturing capacity.

Further, Baxter's niche products, productivity enhancements, and good cost control position the company about as well as can be expected, given current economic conditions. The above suggests a return to the $65-70 range by the end of 2009. The First Call F2009 / F2010 EPS estimates for BAX are $3.74 / $4.24.

Stock Analysis: Baxter is a moderate-risk stock. Consider buying a 25% position in BAX now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your BAX position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $37.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: BAX, Baxter, biotech, health care, inthenews