Is Baxter A Good Stock To Buy?

Baxter International Inc (NYSE:BAX) is a long-standing medical equipment and bioscience manufacturer and distributor based in Deerfield, Illinois. Its products are clinically approved to treat a wide range of chronic and acute medical conditions, like kidney failure. It was also first out the gate for an H1N1 swine flu vaccine in 2009.

Unlike may rivals, BAX share price failed to spring back to life, which creates concerns among investors: is Baxter stock a Buy?

Revenues weren’t the problem weighing it down. It incurred a variety of expenses, including a $568 million pension settlement that took profits from investors.

Still, it has a strong pipeline of products in various stages of clinical trials, including Theranova and Clinimix. It’s forging partnerships with more healthcare companies to continue driving revenue growth.

Although acute therapies income grew over the past year, revenues from products in other markets like advanced surgery, medication delivery, and pharmaceuticals declined. This is because the pandemic kept many people away from healthcare facilities for procedures, checkups, and other medical conditions.

Can Baxter deliver strong results for investors moving forward or will it cripple your finances?

40% Of Baxter Revenues Stem From Biosciences

Baxter International started in 1931 when a medical doctor saw the need for manufacturing intravenous therapy products.

It soon expanded globally and became a conglomerate. It spun-off Baxalta as its own public company in July 2015 after selling its vaccine business to Pfizer the prior year.

Its current product pipeline falls into two categories:

·       Baxter’s Bioscience division includes antibody and hemophilia therapies, critical care, pulmonology, and biosurgery. It accounts for over 40 percent of the company’s revenues.

·       The company’s Medical Products division includes its drug and pharmaceutical partnerships, IV solutions, infusion pumps, parenteral nutrition, anesthesia, dialysis, and renal replacement therapies.

The company made plenty of advancements in clinical testing through the Food and Drug Administration (FDA) trials. Each milestone represents the end of expensive research and development (R&D) spending and a new revenue stream.

Although it’s no longer a player in vaccine development, it did receive FDA Emergency Use Authorizations (EUA) for several treatments in 2020. The pandemic loosened some of its guidelines and reprioritized trials, giving the company an easier road to victory throughout its pipeline.

Its products are bought throughout the healthcare industry, but is Baxter stock worth buying?

Is Baxter Stock A Buy?

There are signs of positivity for Baxter International, not least by examining its financials. Applying a discounted cash flow analysis forecast to Baxter financials reveals an intrinsic price per share of $62.06 per share, which suggests there is upside potential.

The company pays an annual dividend of $0.98, resulting in a 1.24 percent dividend yield. It raised its quarterly cash dividend from $0.22 to $0.245 in June 2020.

The board has authorized regular share buybacks to buoy earnings per share and ultimately share price, which is a boon for investors.

Baxter International’s third quarter 2020 earnings report showed sales of $2.97 billion for the period. It expects between $2.41 and $2.44 earnings per share (EPS) for the full year. The company showed single-digit growth for the year, which is hardly enough for bulls to justify its price hike.

Still, the company’s leadership has a bright outlook for the future. Healthcare will continue to be an issue for the country as older Americans grow in number.

No industry is immune to the effects of a bad economy though, and Baxter International is no exception.

Risks Of Buying Baxter Stock

Management expects to add up to $2 billion in sales of newly approved products through 2023. That assumes they receive the approvals, which isn’t guaranteed.

In fact, the pandemic dragging into another year could clog the FDA’s bandwidth and cause the company to fall behind in its development.

Medical companies also face significant legal costs, and Baxter International has its share of class-action lawsuits in the pipeline. These risk eating away at the potential profits down the line. Should it lose more lawsuits than it wins clinical approvals, revenue expectations will be flipped.

Baxter had over $11 billion in debt heading into the pandemic because of acquisitions and lawsuits. Nevertheless, it receives an A-rating from Fitch, which suggests it’s not exorbitant relative to equity levels.

Baxter Competition Is Stiff

Because it operates on such a large scale, Baxter has a variety of healthcare competitors. Its rivals include Cardinal Health (CAH), B. Braun, CSL, Medline, and Abbott. These companies have their own pipelines with competitive products.

Even when it receives clinical approval, Baxter only gets a temporary patent on its products. Once it expires, others can rush in and steal market share.

The government response to accelerate vaccine treatments boosted revenues for a lot of health companies, many of which got both market cap boosts and government grants. It makes for a competitive market that could see Baxter outspent and lose share of market.

It may need to buy attractive target assets as needed to meet the changing market needs over the next decade.

Is Baxter Stock A Buy? The Bottom Line

Baxter International is an American manufacturer of a variety medical products. Its stock struggled and remained highly volatile during the worst of the pandemic turmoil. This is largely because debt weighed down on profits and people avoided hospitals outside of emergencies.

As the pandemic drags into another year, the company has plenty of room to grow. But it’s not a stock for investors who can’t stomach risk. On the plus side, Baxter share price has upside potential and 10 of the 15 analysts covering the company rate it a Buy while none categorize it as a Sell.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.