BAXTER INTERNATIONAL INC. $52 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 579.4 million; Market cap: $30.1 billion; Price-to-sales ratio: 2.4; Dividend yield: 2.4%; TSINetwork Rating: Average; www.baxter.com) has two divisions: Medical Products (which accounted for 56% of Baxter’s 2010 sales) makes intravenous pumps, syringes and kidney-dialysis equipment; and BioScience (44%), makes vaccines and drugs.
The company makes a wide range of products, and overseas markets account for 60% of its sales. That cuts its risk. As well, Baxter gets about half of its sales from single-use medical products that continually need to be reordered.
Baxter’s sales rose 2.2% in 2010, to $12.8 billion from $12.6 billion in 2009. However, earnings fell 35.6%, to $1.4 billion from $2.2 billion. Earnings per share fell 33.4%, to $2.39 from $3.59, on fewer shares outstanding.
The earnings drop was mainly the result of a $588-million charge related to the recall of its Colleague infusion pumps. Baxter recalled these pumps because they could administer too much medication to patients. It will replace the pumps with newer models, or offer refunds. The company also incurred $257 million in charges related to a plan to improve its profitability by closing certain plants and cutting jobs.
Without unusual items, earnings per share would have risen 4.7%, to $3.98 in 2010 from $3.80 in 2009.
Research spending fell 0.2% in 2010, to $915 million (or 7.1% of sales) from $917 million (7.3% of sales) in 2009. That’s because many of its new drugs and products are in the final stages of development. Baxter also supplements its own products with drugs and medical devices it licenses from other companies.
Baxter’s long-term debt of $4.4 billion is just 1.5 times its 2010 cash flow. The company also holds cash of $2.7 billion, or $4.62 a share. That will gives it lots of flexibility to develop new products and buy back more shares. It spent $1.5 billion on buybacks in 2010.
The company will probably earn $4.20 a share in 2011. The stock trades at 12.4 times that estimate.
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