Baxter International BAX is poised for growth, given the demand for its medically essential products, coupled with transformational actions. However, inflationary pressure remains a concern.
Shares of this Zacks Rank #2 (Buy) company have lost 17.9% in the past six months against the industry's 5.8% growth. The S&P 500 Index has jumped 9% in the same time frame.
BAX, with a market capitalization of $18.35 billion, is a global medical technology company providing items such as kidney-dialysis equipment, infusion pumps and intravenous solutions. The company has an earnings yield of 8.2% compared with the industry's (1.3%). It anticipates earnings to improve 10% over the next five years.
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What's Driving the Performance?
Baxter ended second-quarter 2024 with solid year-over-year growth in both earnings and revenues. Sales across all product categories were strong, except for a decline in Front Line Care due to softness in the U.S. primary care market. However, the category is likely to return to growth in the second half.
Following the erratic impact of the pandemic and its recurrent surges over the past few years, demand for Baxter’s products reflected a sustained recovery in demand so far in 2024. Increasing hospital admissions and rising procedural volume, coupled with higher alternate sites of care, are likely to drive the company’s prospects for 2024 and beyond. Moreover, capital spending by hospitals is expected to improve in the second half of 2024, which should drive demand for related products.
Recent launches of new products are likely to aid top-line growth growing forward. The company launched a next-generation airway clearance system, The Vest Advanced Pulmonary Experience (APX) System, last month. In July, BAX unveiled its Helion Integrated Surgical System in Thailand.
The transformational actions announced last year included a new simplified structure to create a more resilient supply chain and greater alignment with the company’s manufacturing footprint. These actions are likely to have been completed during the first half of 2024, and the company may provide an update on its third-quarter earnings call.
As a part of its restructuring initiatives, Baxter divested its BioPharma Solutions business to Advent International for $4.25 billion in cash in 2023. The divestment helped the company to offload a business, which is facing declining sales following a reduction in COVID-19 vaccine manufacturing, and save in interest expense in 2024.
BAX entered into a definitive agreement in August to divest its Vantive Kidney Care segment to Carlyle, a global investment firm, for $3.8 billion. The company intends to use after-tax proceeds from the transaction to reduce its debt, consistent with its stated capital allocation priorities. The completion of Vantive divestment will likely lead to lower interest payments as well as improve operation efficiency with better capital allocations.
Revenues from continued operations totaled $3.81 billion in the second quarter, up 3% on a reported basis and 4% at constant currency.
What's Weighing on the Stock?
Although recovering, the company continues to face pressure for services related to hospital admissions and procedural volumes. Supply-chain disruptions continue to hurt growth, albeit slowly, compared with the last few quarters. Baxter has a significant presence in the Asia-Pacific (APAC) market, with the geography contributing nearly 17% to its 2023 revenues. Within APAC, China represents a significant opportunity for growth. However, challenging market dynamics in Greater China are likely to put pressure on the company’s top line in the upcoming quarters.
Estimate Trend
The Zacks Consensus Estimate for 2024 revenues is pegged at $15.22 billion, indicating a 1.8% gain from the previous year’s level.
The consensus mark for adjusted earnings per share (EPS) is pinned at $2.96, indicating a 13.9% increase from the year-ago reported number. The consensus estimate for adjusted EPS has improved 1.7% in the past 60 days.
Baxter International Inc. Price
Baxter International Inc. price | Baxter International Inc. Quote
Other Stock to Consider
Some other top-ranked stocks in the broader medical space are Universal Health Service UHS, Quest Diagnostics DGX and Boston Scientific BSX, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Universal Health Service has an estimated long-term growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 14.58%.
Universal Health Service has gained 47% compared with the industry's 47.7% rise so far this year.
Quest Diagnostics has an estimated long-term growth rate of 6.2%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.31%.
Quest Diagnostics shares have gained 12.3% so far this year compared with the industry’s 19% rise.
Boston Scientific’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.18%.
BSX’s shares have gained 22.2% so far this year against the industry’s 8.3% growth.
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