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Analysts Warm To Baxter's Split Announcement

By: Investor's Business Daily
Posted: 3/31/2014 5:38:00 PM
Referenced Stocks: BAX

Baxter International ( BAX ) 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 consolidating.

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 products.

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 average.

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.