Baxter International: A Solid Healthcare Stock

| About: Baxter International (BAX)

Baxter International (NYSE:BAX) is a major distributor and manufacturer of medical devices, medical equipment, and general medical supplies. Most of these goods address a market niche involving the blood and the cardiovascular system. Baxter is a global company with about 61% of revenues coming from overseas. Total revenues break down as follows: Latin America and Canada 12% of revenues, Asia-Pacific 15% of revenues, Europe 32% of revenues, and U.S. 41% of revenues. Baxter operates three primary business segments: Renal Care Products (18% of revenues), Medication Delivery (39% of revenues), and BioSciences (43% of revenues).

Renal Care Products are focused on serving the needs of patents experiencing kidney failure. These products offer a full suite of devices and supplies for the kidney dialysis market. Baxter manufactures and supplies products for both peritoneal dialysis and hemodialysis. One renal care product of interest is Extraneal, which is a chemical solution (icodextrin) that helps remove excess fluid from the blood during dialysis.

Medication Delivery is comprised of intravenous delivery of medication (pre-mixed IV solutions) through infusion pumps and pre-loaded syringes/vials. Baxter also makes inhaled anesthetics for general anesthesia (used to knock-out patents for surgery). Most of these intravenous medications are for chemotherapy, pain management, fluid replenishment, nutritional replenishment, and antibiotic therapy.

The BioSciences unit provides biopharmaceuticals for the treatment of cancer, immune system deficiencies, and other maladies. Also, Baxter manufactures clotting factors for the treatment of hemophilia using plasma based as well as recombinant based techniques. In fact, Baxter's most important product in this segment is Advate a recombinant blood-clotting factor manufactured using a special recombinant process. Other parts of the Bioscience unit are blood storage/processing systems, biosurgical products for tissue sealing/regeneration and hemostasis, and vaccines such as a popular meningitis C vaccine.

Baxter initiated the acquisition of a Swedish renal care company named Gambro AB in December 2012. The deal was for about $4.0 billion in cash and debt and is expected to close in the first half of 2013. Gambro specializes in renal replacement therapies and hemodialysis. These businesses are a good compliment to Baxter's primarily peritoneal dialysis based renal care business. With this acquisition, Baxter will make great inroads into Latin American, Asian, and European markets. Baxter expects that the Gambro acquisition will have little affect on 2013 earnings but will add as much as $0.25 to 2014 earnings.

We believe that Baxter is a good buy for the following reasons:

1. Baxter is selling at an attractive forward earnings multiple of 13.9 times 2013 projected earnings.

2. Baxter has a solid balance sheet with $3.27 billion in cash and relatively little debt (15% of capitalization).

3. Baxter has a very attractive 2.50% dividend yield and a history of consistent dividend increases with the latest dividend increase of 34.3% in September 2012.

4. S&P has a Buy rating on the stock (4 out of 5 stars) and a 12 month price target of $76.00 per share.

Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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