Baxter International Inc. (BAX): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Baxter reported decent third-quarter 2014 results. Adjusted earnings per share were in line with the Zacks Consensus Estimate. Revenues grew 13% year over year on the back of strong international sales. Though the company's upgraded 2014 revenue guidance is positive, lowered annual earnings per share outlook will remain an overhang on the stock. We believe that the Gambro acquisition has long-term prospects for Baxter. Further, a solid product pipeline and strategic collaborations represent key value drivers for the company. However, we are concerned about integration-related risks along with a somber outlook for hospital spending. Baxter also has to combat intense competition, specifically in the hemophilia franchise. Moreover, higher operating expenses will continue to hurt profitability at least over the next 12 months. Thus, we downgrade our recommendation from Neutral to Underperform and set a price target of $65.00.


Overview:

Founded in 1931, Baxter International, Inc. (BAX) is a global medical products and services company with expertise in medical devices, pharmaceuticals, and biotechnology. The company is headquartered in Deerfield, IL. Baxter manufactures its products in 30 countries and markets them in more than 100 countries. Majority of its products are sold outside the U.S. (58.5% in the first nine months of 2014). The company operates through two business segments: BioScience and Medical Products.

The BioScience segment (39.5% of revenues in the first nine months of 2014) processes recombinant and plasma-based proteins to treat hemophilia and other bleeding disorders plasma-based therapies to treat immune deficiencies, alpha-1 antitrypsin deficiency, burns and shock, and other chronic and acute blood-related conditions. It also sells biosurgery products and vaccines. Currently, the segment includes four commercial franchises:

Hemophilia This includes sales of recombinant factor VIII products and plasma-derived hemophilia products (primarily plasma-derived factor IX, factor VIII and inhibitor therapies).

BioTherapeutics This includes sales of antibody-replacement immunoglobulin therapies and other plasma-based therapies, such as albumin and alpha-1 antitrypsin products.

BioSurgery This consists of biological products and medical devices used in surgical procedures for hemostasis, tissue sealing, adhesion prevention and hard tissue repair, as well as soft tissue repair and microsurgery products.

Vaccines This consists of vaccines for meningitis C and tick-borne encephalitis, and includes ongoing collaborations for the development of seasonal and pandemic influenza vaccines.

The Medical Products segment (60.5% of revenues) manufactures intravenous ("IV") solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, infusion pumps, and inhalation anesthetics. It also manufactures products and provides services related to pharmacy compounding, drug formulation and packaging technologies as well as to treat end-stage renal disease, or irreversible kidney failure. These apart, the segment provides products and solutions for home-based peritoneal dialysis ("PD ) therapy and hospital or clinic-based hemodialysis ("HD") therapy. Currently, the segment includes four commercial franchises:

Fluid Systems This consists of IV therapies, infusion pumps, administration sets and premixed and oncology drugs platforms.

Renal This includes PD and HD therapies.

Specialty Pharmaceuticals This includes nutrition and anesthesia products.

BioPharma Solutions This comprises sales from the pharmaceutical partnering business and pharmacy compounding services.

On Mar 27, Baxter revealed that it will split up its biopharmaceuticals and medical device segments into two independent companies. The new biopharmaceuticals company will be known as Baxalta Inc. Management expects to complete the transaction by mid 2015.


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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.




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