BAXTER INTERNATIONAL INC. $72 (New York symbol BAX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 540.9 million; Market cap: $38.9 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.7%; TSINetwork Rating: Average; www.baxter.com) is the latest of our recommendations to announce a spinoff. (We analyze three other recent spinoffs in this issue.)
Baxter plans to split into two separate companies. One will focus on medical devices, such as intravenous pumps and kidney-dialysis equipment. This business provides 60% of Baxter’s total revenue. The other firm will make biopharmaceuticals, including vaccines and hemophilia drugs.
In mid-2015, Baxter will hand out shares in the biopharmaceutical company to its shareholders as a tax-deferred dividend.
Meanwhile, Baxter earned $652 million in the three months ended March 31, 2014. That’s up 8.5% from $601 million a year earlier. Earnings per share gained 9.2%, to $1.19 from $1.09, on fewer shares outstanding. Revenue rose 14.6%, to $4.0 billion from $3.4 billion.
The stock jumped 8% on the spinoff news. It now trades at 14.0 times Baxter’s likely 2014 earnings of $5.15 a share. That’s a particularly attractive p/e ratio for a market leader that spends 8% of its revenue on research. The $1.96 dividend yields 2.7%.
Baxter is a buy.
