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Reasons to Retain Baxter International (BAX) in Your Portfolio Now

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 #3 (Hold) company have lost 12.4% year to date against the industry's 3.1% growth. The S&P 500 Index has increased 11.6% in the same time frame.

BAX, with a market capitalization of $17.27 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 8.6% compared with the industry's (0.0%). It anticipates earnings to improve 6.6% over the next five years.

Zacks Investment Research
Zacks Investment Research


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What's Driving the Performance?

Baxter Internationalended first-quarter 2024 with a strong improvement in both earnings and revenues. Sales across all product categories were strong, except for a decline in Care & Connectivity Solutions, led by softness in the U.S. primary care market. However, the category is likely to return to growth in the second half.

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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 in 2023. Increasing hospital admissions and rising procedural volume, coupled with higher alternate sites of care, are likely to drive the company’s prospects in 2024. Moreover, capital spending by hospitals is likely to improve in 2024, which should drive demand for related products.

The transformational actions announced last year that included new simplified structure to create a more resilient supply chain and greater alignment with the company’s manufacturing footprint are likely to be completed by mid-2024.

As a part of its restructuring initiatives, Baxter International 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 that is facing declining sales following reduction in COVID vaccine manufacturing and save in interest expense in 2024.  BAX has also progressed with its plan to create a standalone kidney care company that will comprise its Renal Care and Acute Therapies product categories. The independent company, expected to be formed following the potential spin-off by July 2024, will be called Vantive.

Revenues from continued operations totaled $3.59 billion in the first quarter, up 2% on a reported basis and 3% at constant currency.

Notable Developments

Earlier this month, Baxter International received the FDA’s approval for an expanded indication for Clinolipid (Lipid Injectable Emulsion) to be used in pediatric patients, including preterm and term neonates.

In April, the company announced the expansion of its Pharmaceutical portfolio with the launch of five injectable products in the United States. The launched products are likely to provide ready-to-use formulations that promote patient needs in key therapeutic areas and benefit healthcare professionals with additional convenience. The FDA cleared BAX’s Novum IQ large volume infusion pump (LVP) with Dose IQ Safety Software for use in the U.S. market. The addition of new software is expected to enable clinicians to utilize a single, integrated system across a variety of patient care settings.

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 when compared with the last few quarters. Baxter International has a significant presence in the 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.

Estimates Trend

The Zacks Consensus Estimate for 2024 revenues is pegged at $15.11 billion, indicating a 1.1% decline from the previous year’s level. However, revenues are likely to grow 4% in 2024.

The consensus mark for adjusted EPS is pinned at $2.91, indicating an 11.9% increase from the year-ago reported number. The consensus estimate for adjusted EPS has improved 0.7% in the past 30 days.

Baxter International Inc. Price

Baxter International Inc. Price
Baxter International Inc. Price

Baxter International Inc. price | Baxter International Inc. Quote

Stocks to Consider

Some better-ranked stocks in the broader medical space are DaVita Inc. DVA, Align Technology ALGN and Encompass Health EHC.

DaVita, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 13.6%. DVA’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 29.35%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DaVita’s shares have risen 32.2% year to date compared with the industry’s 0.3% growth.

Align Technology, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 6.9%. ALGN’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 5.92%.

Align Technology’s shares have lost 6.7% year to date compared with the industry’s 3.2% decline.

Encompass Health, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 15.6%. EHC’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 18.74%.

Encompass Health’s shares have risen 26.6% year to date compared with the industry’s 8.7% growth.

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Baxter International Inc. (BAX) : Free Stock Analysis Report

DaVita Inc. (DVA) : Free Stock Analysis Report

Align Technology, Inc. (ALGN) : Free Stock Analysis Report

Encompass Health Corporation (EHC) : Free Stock Analysis Report

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