Shares of rental and hospital products provider Baxter International Inc. (BAX) have gained more than 76% over the past five years, leveraging the company’s wide portfolio of products and therapies that can be found across hospitals and clinics, pharmacies and ICUs. BAX is based in Deerfield, Ill.
However, the stock has lost 4.5% over the past three months and 8% year-to-date—to close yesterday’s trading session at $81.07—due to a darkening in hedge fund sentiment lately. Investors’ concerns over the company’s decline in net income in the first quarter could be another reason for the stock’s weak performance so far this year. While BAX’s revenues grew across its major segments, its net income for the quarter declined 9.9% year-over-year to $300 million.
BAX has collaborated with Moderna, Inc. (MRNA) and Novavax, Inc. (NVAX) to provide fill/finish sterile manufacturing services and supply packaging for their COVID-19 vaccines. It paid a $0.28 quarterly dividend per share on July 1, which represents a roughly 14% increase over the previous quarterly dividend. So, the stock’s prospects look promising.
So, here are the factors that we think could shape BAX’s performance in the long run:
Impressive Historical Performance
By leveraging its wide portfolio of products and services, BAX’s revenue has grown at a 3.5% CAGR over the past five years. The company launched its KAGUYA APD system in Japan in 2018. Its EBITDA and EPS have grown at CAGRs of 5.3% and 11.1%, respectively, over the past three years. Furthermore, the stock has gained 76.3% over the past five years and more than 9% over the past three years.
Consistent Product Innovation
On June 2, BAX announced the launch of the Sharesource Analytics 1.0 premium module. The product represents the next generation of digital health for home-based peritoneal dialysis patients. On May 2, BAX executed the global launch of PrisMax 2, which is designed to help simplify the delivery of continuous renal replacement therapy and other organ support therapies, while providing hospitals the flexibility to meet the unique demands of the ICU. Also, its Artificial Kidney 98 (AK 98) dialysis machine received U.S. Food and Drug Administration (FDA) clearance in March 2021.
Revenue Growth Across Major Segments
For the first quarter, ended March 31, 2021, BAX’s sales from its renal care segment came in at $922 million, up 6% year-over-year. The company’s sales from its pharmaceuticals and acute therapies segments increased 7% and 33%, respectively, year-over-year to $552 million and $207 million. Its net income for the quarter came in at $300 million, which represents a 75.4% sequential rise. Its $0.76 non-GAAP EPS for the quarter surpassed the consensus estimate by 16.9%.
Favorable Analyst Estimates
Analysts expect BAX’s revenue to increase 13.7% for the quarter ending September 30, 2021, 8.5% in 2021 and 5.2% in 2022. The company’s EPS is expected to grow 13.6% in its fiscal year 2021 and 14.2% in 2022. Also, its EPS is expected to grow at an 11.5% rate per annum over the next five years. Wall Street analysts expect the stock to hit $94 in the near term, which indicates a potential 16% upside.
POWR Ratings Show Promise
BAX has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. BAX has a B grade for Growth, which is consistent with analysts’ expectations that its revenue and EPS will increase.
The stock has a B grade for Value also. This is justified given its 3,52x forward EV/S, which is 51.1% lower than the 7.20x industry average. Its 3.22x forward P/S is 60% lower than the 8.05x industry average. BAX also has a B grade for Stability, which is in sync with its 0.68 beta.
If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of Strong Buy or Buy, you can access them here.
BAX has generated significant returns over the past years providing critical care, hospital care, nutritional care, renal care and surgical care, among other care services. It appears to be a bargain at its current price level given its impressive growth prospects. So, we think it’s wise to add the stock to one’s portfolio now for solid long-term returns.
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BAX shares were trading at $81.12 per share on Wednesday morning, up $0.05 (+0.06%). Year-to-date, BAX has gained 1.76%, versus a 16.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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