Growth & Income: Baxter International

Baxter International (BAX) had a rough spring. Days after reporting disappointing first quarter results, the company announced the FDA ordered a recall of one of its major products. Shares plunged.

After reaching a nadir in late June, however, shares have surged over 20% thanks in large part to a solid second quarter earnings report. Several analysts have been revising their estimates higher in the last few weeks, prompting an upgrade to a Zacks #2 Rank (Buy).

About Baxter

Baxter International is a global medical products and services company. It operates in two main segments: BioScience and Medical Products. Sales for the second quarter of 2010 were divided as follows:

BioScience: 43%
Medical Products: 57%

Over half of the company’s sales comes from overseas.

Second Quarter Results

Total sales increased 2% to $3.2 billion in the second quarter of 2010. Sales in its BioScience division declined 4%.

The company saw strong growth in its Medical Products segment, however. Medication Delivery, which makes up a large chunk of its Medical Products line, grew by 9%. Renal sales, which also comprises its Medical Products line, saw sales growth of 6%.

Baxter’s overall gross margin decreased a bit, from 52.4% to 51.3%.

Earnings per share came in at 93 cents, beating the Zacks Consensus Estimate by a penny. It was a 3% drop in EPS from the same quarter in 2009, however.


Management confirmed its guidance for 2010 following its latest earnings release. For the full-year 2010, Baxter expects 1-3% sales growth and earnings per share between $3.93 to $3.98.

The Zacks Consensus Estimate for 2010 is within management’s guidance at $3.94. This equates to 4% annual EPS growth. The 2011 estimate is currently $4.24, representing an 8% annual gain.


After several years of holding its dividend steady, Baxter has been steadily increasing it since 2007. In the last three years it has grown at a compound annual rate of 20%. Take a look at its dividend history chart since 2001:

It currently yields 2.4%.

Baxter also spent approximately $838 million repurchasing nearly 15.2 million shares.

The company expects operating cash flow of approximately $2.7 billion in 2010. This should allow Baxter to continue buying back shares and to comfortably pay its dividend.


Baxter is trading at reasonable valuations. Shares trade at 12.4x forward earnings, a significant discount to the industry average of 21.0x. Its PEG ratio of 1.4 is in-line with the group, however.

Its price to sales ratio of 2.2 is in-line with the industry average, and so is its price to free cash flow ratio of 15.5.

Baxter’s return on equity is an impressive 34.1%, well-above its peers at 11.9%.

The company was founded in 1931 and is headquartered in Deerfield, Illinois. It has a market cap of $28.5 billion.

By Todd Bunton

BAXTER INTL (BAX): Free Stock Analysis Report

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