The new U.S. health care law (“Obamacare”) will force Baxter International to pay a 2.3% tax on certain medical devices it sells in the country. However, the law will also expand health insurance to more Americans, which should spur demand for the company’s products. It is also increasing its overseas sales. The U.S. accounts for just 40% of Baxter’s sales.
BAXTER INTERNATIONAL INC. (New York symbol BAX; www.baxter.com) makes medical products, such as intravenous pumps and kidney dialysis equipment. It also produces vaccines and drugs.
The company has agreed to pay $4.0 billion for Gambro AB, a privately held Swedish company that makes dialysis products. It should complete the purchase in the next few weeks. If you exclude acquisition-related costs and other unusual items, Baxter would have earned $581 million in the quarter ended March 31, 2013. That’s up 2.1% from $569 million a year earlier.
Due to fewer shares outstanding, per-share earnings rose 4.0%, to $1.05 from $1.01. Sales rose 1.8%, to $3.45 billion from $3.39 billion.
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Stock investing: Baxter lowers research costs by teaming up with another firm
A big part of the company’s success comes from its ability to develop new products. The company spent $246 million (or 7.1% of its sales) on research in the latest quarter. That’s down 8.6% from $269 million (or 7.9% of sales) a year earlier. Baxter recently teamed up with another firm to develop certain products, which lowered its research costs.
The company will probably earn $4.66 a share in 2013. The stock trades at 15.2 times that forecast.
Baxter raised its quarterly dividend by 8.9%, to $0.49 a share from $0.45. The new annual rate of $1.96 yields 2.8%.
In the latest edition of Wall Street Stock Forecaster, we look at Baxter’s outlook, including the impact the acquisition of Gambro will have on the company’s earnings. We conclude with our clear buy-hold-sell advice on the stock.
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Pharmaceutical and medical stocks stand to gain from the increasing need for health care from an aging population. Yet there are many more publicly-traded health care companies in the U.S. than in Canada. Do you think it is worthwhile for Canadian investors to set aside a portion of their portfolios for U.S. stocks in this field? Let us know what you think.
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