Analysts Warm To Baxter's Split Announcement


Baxter International ( BAX ) decided last week to split itself into two companies, giving its stock a nice pop.

Analysts applauded the move as "unlocking value" in the underperforming issue. Biotechs, drugmakers and other medical stocks have been on a roll for months. Baxter has been consolidating.

One of the new companies will be formed from the medical products division, which will retain the Baxter name. It had $9.4 billion in sales last year from a portfolio of products, including IV equipment, drug-delivery systems and surgical products.

The biopharmaceuticals arm, as yet unnamed, specializes in hemophilia treatments, led by blockbuster drug Advate. Last year it accounted for less than 40% of the division's sales, but the majority of profit.

The company hopes to complete the split by mid-2015.

Last Thursday, when the announcement was made, the stock gapped up and closed nearly 4% higher on volume 446% above average.

Baxter is a slow but steady grower. Its five-year annualized EPS growth rate is just 7%, and in the most recent quarter, earnings were flat vs. a year ago. But it has a five-year Earnings Stability Factor of 2 on a 0 to 99 scale where low numbers correspond to steady growth. Baxter has nine straight years of annual earnings growth. Analysts expect 10% EPS growth this year and 7% next year.

The return on equity is an impressive 33.3%, well above the 17% benchmark investors should seek. That's goosed by a debt-to-equity ratio of 96%.

Pretax margin fell slightly in 2013 to 21.6%. It still boasts seven straight years of pretax margins of 20% or more.

Baxter has paid out a quarterly dividend since 2007. It started at 16.75 cents a share and is now 49 cents a share. That translates to a 2.7% annual yield.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: BAX

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