The firm’s shares are down since April 2020, largely because hospitals postponed elective surgical procedures due to the COVID-19 pandemic.
But now the pandemic is easing and demand for this firm’s products is rebounding. The company’s purchase of a hospital equipment maker should also position it for more growth.
Meanwhile the stock trades at 17.0 times the company’s 2022 earnings forecast.
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BAXTER INTERNATIONAL INC. (New York symbol BAX) makes a wide range of medical devices, including intravenous pumps and kidney-dialysis equipment.
Baxter’s revenue gained 21.0%, from $10.56 billion in 2017 to $12.78 billion in 2021.
Starting in 2015, the company began a multi-year restructuring plan; it includes consolidating facilities and focusing on high-margin products. The company expects the plan will cut $1.2 billion from its annual costs by the end of 2023.
Thanks to those savings, Baxter’s overall earnings (before unusual items) rose 24.8%, from $1.38 billion in 2017 to $1.72 billion in 2019. Due to fewer shares outstanding, earnings per share over those three years rose at the faster pace of 33.5%, from $2.48 to $3.31. COVID-19 cut 2020 earnings to $3.09 a share (or a total of $1.60 billion), but earnings rebounded to $3.61 a share ($1.84 billion) in 2021.
In late 2021, Baxter acquired Hill-Rom Holdings Inc. for $10.5 billion. Based in Chicago, Hill-Rom makes a variety of medical care devices and products, including intensive-care unit beds, operating tables, patient monitoring equipment and electronic diagnostic systems.
Eliminating overlapping operations should cut $250 million from Baxter’s annual costs by the end of the third year. Those savings should lift annual earnings per share by 10% in the first year, rising to 20% by the end of the third year.
As a result of that purchase, Baxter’s sales in the second quarter of 2022 jumped 20.9%, to $3.75 billion from $3.10 billion a year earlier. However, that missed the consensus forecast of $3.88 billion. If you exclude Hill-Rom and currency rates, sales rose 3%.
If you disregard costs to integrate the new business and other unusual items, Baxter’s earnings improved 8.8% in the quarter, to $0.87 a share from $0.88. That matched the consensus estimate.
However, Baxter continues to face shortages of key components, as well as rising fuel and other expenses. As a result, it now expects to earn between $3.60 and $3.70 a share for all of 2022, down from its earlier range of $4.12 to $4.20 a share.
The stock trades at 17.0 times the midpoint of its new forecast. That’s a reasonable p/e as the company continues to benefit from rising demand for its products as hospitals resume elective procedures on the easing of COVID-19 caseloads. The $1.16 dividend yields 1.9%.
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