Today’s installment of The Blue Chip Stock Report will look at Baxter International Inc. (Baxter). The Blue Chip Stock Report provides market and stock valuation commentary on only the S&P 500 Index and its companies. Blue chips at the poker table are the chips with the highest value. In our opinion, blue chip S&P 500 companies are the best way to create a portfolio that both preserves and grows capital.
At a Glance:
Baxter International Inc. (NYSE: BAX), $47.89, P/E (ttm) 13.21, Earnings Per Share (ttm) $3.62, Market Cap $28.9 billion, Dividend & Yield ($1.16 & 2.40%). One year forecast target price $59.09. Based on management’s 2010 forecast of $3.92 to $4.00 per share fully diluted, the stock is now selling for about 12.1x forward earnings.
Blue Chip Stock Report:
Baxter is a healthcare company with headquarters in Deerfield, Illinois. The company primarily focuses on products to treat hemophilia, kidney disease, immune disorders and other chronic and acute medical conditions. Baxter’s sales for the year ended December 31, 2009, were $12.6 billion and net income $2.2 billion from three segments: Bioscience, producing blood plasma proteins; Medication Delivery producing intravenous therapy products and liquids; and Renal producing equipment for dialysis and the treatment of kidney disorders. The company is also involved in the production of a vaccine for the H1H1 influenza.
Baxter’s global sales for 1Q increased 11% to $3.1 billion; $1.8 billion or 58% were foreign sales. The distribution of 1Q sales were Bioscience $1.4 billion (+9%), Renal $0.6 billion (+13%), and Medication Delivery $1.2 billion (+14%). While Baxter’s 1Q performance looks good, management revised guidance for 2010 from the per share earnings range of $4.20 to $4.28 to a new range of $3.92 to $4.00 or an average decrease of 6.6%. The market took the stock from its April 20 price of $59.92 to what should be a low on April 27 of $47.49. Therefore, the stock is down 20%, because of the 6.6% downward guidance change. In our opinion, the sell-off has been excessive and it has created a buying opportunity. Why?
Baxter is a blue chip company with strong management and financials that we expect will outperform the S&P 500 Index over the next several years in up and down markets. The decline of the dollar long-term is inevitable and because Baxter has 58% of sales in foreign markets, any dollar weakness will be a positive for Baxter’s earnings. Today, investors are looking for long term macro drivers of stock prices and global demographics make a blue chip healthcare company like Baxter a safe bet to ride that wave. On December 31, 2009, the balance sheet had cash of $2.8 billion, long-term debt of $3.4 billion, and total stockholder equity of $7.2 billion. Baxter’s management team is capable of dealing with any competitive challenges and it has the financial resources to grow the company without selling additional stock and diluting existing stockholders.
Disclosure: No positions