Baxter's 2014-second quarter adjusted earnings per share of $1.26
grew 5.0% y-o-y and beat the Zacks Consensus Estimate by $0.05.
Revenues of $4,264 million were up 16.2% and topped the mark as
well. We are impressed by the company's upgraded revenue guidance
but narrow earnings guidance for full year 2014. Although
expensive, the Gambro acquisition has long term prospects for
Baxter. Further, a solid product pipeline and strategic
collaborations, represents key value drivers for the company.
However, we are concerned about integration-related risks along
with a somber outlook for hospital. As a result, we reiterate our
Neutral recommendation on Baxter with a target of $79.00.
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, Illinois. Baxter manufactures its
products in 27 countries and markets them in more than 100
countries. Majority of its products are sold outside the U.S.
(58.7% in the first six months of 2014). The company operates
through two business segments: BioScience and Medical Products.
BioScience segment (40.9% of total revenue in the first half 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.
Medical Products segment (59.1% of total revenue in the first
half of 2014) 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 peritoneal dialysis (PD) and hemodialysis
Specialty Pharmaceuticals This includes nutrition and anesthesia
BioPharma Solutions This comprised sales from the pharmaceutical
partnering business and pharmacy compounding services.
On Mar 27, 2014, Baxter revealed that it will split-up its
biopharmaceuticals and medical device segments into two independent
companies in order to put greater management focus on the two
businesses, effectively commercialize product offerings,
efficiently allocate resources to high growth areas, and bring
flexibility in deciding on growth and investment strategies. The
company expects to complete splitting up the business in mid-2015.
The transaction will take the form of a tax-free distribution to
the company's shareholders of a new publicly traded stock in the
new biopharmaceuticals company. It expects to incur one-time
charges due to the split up during the reporting periods preceding
the separation. However, the company does not expect it to impact
the financial guidance for 2014.
Baxter's BioScience business will focus on immune deficiencies
and blood-related disorders and includes the plan to form a
partnership or sale of its drug development programs based on the
flu and Lyme diseases. On the other hand, BAX's medical device
business will continue to focus on intravenous (IV) solutions,
injectable drugs, anesthetics, and other equipments. Ludwig N.
Hantson the current president of BioScience division will be named
as the CEO of the new biopharmaceuticals company. Baxter director
Wayne T. Hockmeyer will serve as nonexecutive chairman of the new
unit. BAX's current CEO and chairman, Robert L. Parkinson Jr., will
lead the medical products business in the future, retaining its
Baxter International Inc. (BAX): Read the Full
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