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.
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
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
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
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
Baxter International Inc. (BAX): Read the Full
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