(By R. Chandrasekaran) Medical instruments maker Baxter International
) is one of the few companies that has potential to buck the industry trend in view of the company's attractive end-market exposure. What is more interesting is that the company still has the potential to lift its prices.
The Deerfield, Illinois-based company's substantial level of investment spending are also expected to offer sustained outer year growth in the years leading to 2015. Investors seem to be concerned with sustained growth prospects following a tough, competitive environment and broader industry headwinds such as weak utilization and higher pricing pressure.
The long-term growth for Baxter looks intact on many counts. Firstly, the company's end-market demand is solid to post robust growth coupled with favorable pricing patterns in the U.S. Secondly, an underappreciated product pipeline with many new product launches scheduled until 2015 in both new categories and an extension of key product line. Thirdly, the company could expand its presence in emerging economies with 22 percent of sales coming from the region during the June quarter. Finally, positive capital allocation including accretive new share repurchase of $2 billion apart from Goldman, Sachs' calculated dividend yield of more than 6 percent. Interestingly, the company bought back $960 million worth of shares and returned $374 million to investors through dividends until June in 2012.
For the first half of 2012, Baxter earned $1.2 billion profit or $2.24 a share representing a 9 percent growth on EPS. On an adjusted basis, net income was close to $1.2 billion, but EPS witnessed 4 percent upsides at $2.13 over last year's $2.05 a share. Global sales rose 2 percent to $7.0 billion, while excluding currency impact; sales would have grown 4 percent.
Recently, Goldman, Sachs hosted a field visit at Baxter's and the topic centered around fundamentals in the core plasma protein franchise, which contributed 21 percent of sales, the possible impact of new competition in Recombinants that represented 16 percent of sales, R&D productivity, capital allocation priorities and corporate strategy.
In an equity research note to clients, Goldman Sachs analyst David Roman commented, "We see Baxter as bucking the trend vs. other mature players in MedTech, as the company has invested more consistently in its business, successfully integrated tuck-in acquisitions, and recently boosted the dividend by 34% (now the highest yield in the group). Overall, we are maintaining our CL-Buy and $67, 12-month price target. We came away from the meeting confident in our long-term thesis on the stock"
The stock closed Monday's regular trading market at $58.66.