Although Baxter International's (NYSE: BAX) shares have underperformed since the Buy rating on March 13, 2009 at a price of $51.16, there's been no change in the company's positive operational characteristics, hence I'm Reiterating my Buy rating.And what's Baxter's key operational characteristic? Versatility. Baxter makes of a variety of medical products across three divisions, including drugs and vaccines, dialysis equipment, and IV supplies. The company should record a FY2009 revenue increase of 2-4%, led by demand for recombinants, plasma proteins, and antibody therapies in its bioscience unit.
Slower growth is seen in its medication delivery unit, but Baxter has done a good job focusing on high-margin businesses, divesting low-margin lines, and eliminating excess manufacturing capacity. The FY2009/FY2010 EPS estimates for BAX are $3.80 to $4.29.
To be sure, Medicare reimbursement rate changes represent a risk, moving forward, but the view from here argues any reductions will be made for by increased customers, stemming from federal health care reform legislation.
Technically, Baxter's stock has dipped below the key 50-day moving average, but most likely, that's a correction. Should BAX fall and stay below the 50-day MA, and also the psychologically-significant $50 level, that would be a concern. But given BAX's earnings track, the correction thesis is the more-plausible analysis.
Stock Analysis: Baxter International is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in BAX now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your BAX position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $37.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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