Baxter International (
) 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
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
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
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.