Baxter: This Near 3% Yielder Is Undervalued After 25% Pullback

| About: Baxter International (BAX)
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Baxter International is down some 25% since its highs this summer. Given its low valuation, steady growth prospects and solid dividend yield; it appears to have sold off too much especially if the market starts to shift into defensive sectors of the market as the contagion in Europe continues.

Baxter (NYSE:BAX) - "Baxter International Inc., through its subsidiaries, develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. The company operates in two segments, BioScience and Medical Products." (Business description from Yahoo Finance)

7 reasons why Baxter is undervalued at $48 a share:

  1. The stock yields 2.8%. It has also increased its dividend payout at an average 16% clip over the last half decade.
  2. Baxter is selling near the bottom third of its five year valuation range based on P/E, P/S and P/B.
  3. It appears to have technical support at the $48 level:
  4. The stock is some 30% below the median consensus analysts' price target of $63 a share.
  5. Its projected five year PEG is 1.1 which is very reasonable given its dividend yield and the fact it has grown EPS at 12.5% annually over the last five years in a very difficult environment.
  6. Baxter continues to show steady earnings growth. It earned $3.98 a share in FY2010, is expected to earn $4.31 in FY2011 and consensus estimates for FY2012 are for $4.65 a share.
  7. Baxter has an A+ rated balance sheet, very low beta (.47) and should outperform the market in a slow growth environment.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BAX over the next 72 hours.