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

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Summary:
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.

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, 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 (HD) therapies.

Specialty Pharmaceuticals This includes nutrition and anesthesia products..

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 international name.


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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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