Baxter: Just What the Doctor Ordered

By Ryan C. Fuhrmann | July 28, 2009 AAA

Diversified healthcare provider Baxter (NYSE:BAX) recently reported another quarter of respectable sales growth and impressive profit expansion. These results aren't overly surprising given the firm's product focus, and could come in quite handy for investors seeking stability in their portfolios, especially if the global economy remains on uneven footing.

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Quarterly Review

Total reported sales fell 2% to $3.1 billion as foreign exchange fluctuations offset what would have been 8% positive growth on a constant-currency basis. Baxter reports results in three primary segments. The largest is BioScience, which sells products to treat hemophilia and related bleeding disorders and posted constant-currency top line growth of 13% on strong recombinant and plasma protein sales. Medication delivery, the company's second largest segment, focuses on delivery systems for intravenous applications, and drug vials and syringes; it saw core sales improve 8%. The final segment is renal, which sells products to address renal diseases; it posted a moderated top-line growth of 4%. (Learn how to use revenue and expenses to break down and analyze a company in Understanding The Income Statement.)

Baxter's products can be characterized as more of a necessity in the healthcare industry. For example, patients with kidney failure have little choice but to continue treatment, and a focus on vaccines is another core product. The recent swine flu scare has also boosted the near-term prospects of firms like Baxter, although Glaxosmithkline (NYSE:GSK) and Roche Holdings (OTC:RHHBY) are seeing the strongest boost for sales of Relenza and Tamiflu, respectively.

A stable sales mix and effective cost management filtered down to the bottom line and combined to boost diluted earnings per share 13% to 96 cents, which was ahead of analyst projections by two pennies. Operating cash flow generation also improved, boosting management's confidence sufficiently so that it felt comfortable raising its full-year earnings expectations to between $3.76 and $3.80 per diluted share.

Bottom Line
Baxter's industry designation is medical instruments and supplies, which also speaks to the steady and recurring nature of its sales. Rivals such as C.R. Bard (NYSE:BCR) and Becton Dickinson (NYSE:BDX) are experiencing similar sales trends, with positive organic growth being challenged by currency effects. Becton Dickinson reports its own second-quarter earnings on July 30, while CR Bard just reported results that saw a core sales boost of 6% and robust profit growth. (Learn how to find a healthy pharmaceutical investment; read Measuring The Medicine Makers.)

Shares of Baxter were more of a deal when they traded below $50 per share, but at current levels, they still trade at a reasonable forward P/E multiple of just over 14. For investors seeking more tangible signs of a global economic recovery, Baxter and its peers could be just what the doctor ordered.

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