BAXTER INTERNATIONAL INC. (New York symbol BAX; www.baxter.com) makes medical products, such as intravenous pumps and kidney dialysis equipment. It also makes vaccines and drugs. Half of its sales come from single-use products that need to be continually reordered.
Demand for the company’s products continues to improve, particularly as an aging population needs more medical devices and drugs. Baxter’s sales rose 23.4%, from $11.3 billion in 2007 to $13.9 billion in 2011.
Earnings rose 36.1%, from $1.8 billion in 2007 to $2.5 billion in 2011. The company is an aggressive buyer of its own shares. Because of a 10% drop in the number of shares outstanding, earnings per share jumped 54.5%, from $2.79 to $4.31.
A big part of the company’s success comes from its ability to develop new products. Baxter spent a record $946 million (or 6.8% of its sales) on research in 2011. That’s up 3.4% from $915 million (or 7.1% of sales) in 2010.
To complement its own research, Baxter set aside $200 million in 2011 to help smaller companies working on new drugs. As part of this plan, Baxter invested $50 million in Onconova Therapeutics, a Pennsylvania-based private firm that has developed a new intravenous pancreatic cancer drug called Rigosertib. This treatment is now undergoing clinical trials.
Baxter later agreed to pay an additional $50 million for the European rights to Rigosertib. If regulators approve the drug, the company may have to pay a further $515 million.
Rigosertib nicely complements Baxter’s existing anti-cancer drugs. The company can also use its extensive salesforce to promote Rigosertib to clients who already buy its intravenous equipment.
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Stock investing: Acquisitions key part of Baxter’s expansion into new products
The company also uses acquisitions to enhance its growth. For example, in February 2012 it paid $304 million for Synovis Life Technologies, which makes patches and surgical tools to treat burns other wounds.
The U.S. accounts for just 40% of Baxter’s sales. It feels its sales will rise 5% a year to 2017. It also projects that its annual earnings per share will grow 7% to 9% over this period.
The company should earn $4.53 a share in 2012, and the stock trades at 14.6 times that estimate. The $1.80 dividend yields 2.7%.
In the latest edition of Wall Street Stock Forecaster, we look at how the taxes and regulations stemming from Obamacare are liable to affect Baxter. We also look at company’s ability to finance its ambitious expansion program. We conclude with our clear buy-hold-sell advice on the stock.
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