Tickers in this Article: BAX, NVO, NXTM, FMS, HSP, CFN, GRFS
What exactly is Baxter International (NYSE:BAX) supposed to be? It has a huge business in biological therapies for conditions like hemophilia, but also a sizable business in medical devices and equipment. It's not priced as a value stock, it's dividend is too low for an income stock, but it doesn't really grow enough to be a med-tech growth story. All in all, Baxter is a consummate "neither fish nor fowl" company, but that does not mean that it is not worth a serious look from investors looking for a quality health-care name with growth potential.

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A Challenging Third Quarter
Analysts seemed positive on Baxter's third quarter results, but it is not immediately clear as to why they should be. Organic revenue growth was just 4% - maybe not terrible in the context of a tough health-care market that has laid low even Johnson & Johnson (NYSE:JNJ) and Abbott Laboratories (NYSE:ABT), but not exactly torrid either.

Growth was even between the biosciences business (up 4% in constant currency) and the medical products (up 4% in constant currency). Antibody therapy grew very nicely at 11%, while the recombinant business saw a 1% decline. The renal care and IV therapy business both grew, though at very modest rates (2 and 3%, respectively).

Profitability is likely to raise a few questions as well. Gross margin slid about a half-point from last year and almost a full point on a sequential basis. Adjusted net income growth of 5% was likewise not terribly strong. The good news here, such as it is, is that the elevated cost of goods was a product of both foreign exchange and the need to compensate for some production difficulties. While the latter should get better soon, the former is a wildcard that affects every company. (To know more about medical equipment companies, read: Investing In Medical Equipment Companies.)

A Big Cap with a Real Pipeline
Aside perhaps from JNJ, there are very few health-care companies with pipelines that should generate any legitimate excitement in investors. Baxter is one of those few. The company's HyQ product should start contributing next year and the company has some exciting shots on goal in coagulants and Alzheimer's. Although Alzheimer's has been a source of perpetual disappointment for Eli Lilly (NYSE:LLY), Pfizer (NYSE:PFE), JNJ, Abbott and Big Pharma as a whole, it is a big enough market to be worth a shot, and Baxter's approach is a new one.

It is fortunate that Baxter has a good pipeline, as they may well need it. Biogen (Nasdaq:BIIB) and Novo Nordisk (NYSE:NVO) have targeted the hemophilia business that supplies about one-third of Baxter's pre-tax earnings, so Baxter cannot afford to rest on its laurels.

Is Home Hemodialysis Ready For Prime Time This Time?
Baxter has a healthy business selling equipment and supplies into the dialysis market, but the market may finally be moving away from in-center dialysis (where patients show up multiple times a week for this life-preserving therapy) to in-home treatment. Pure play NxStage Medical (Nasdaq:NXTM) has built a billion-dollar market cap for itself based on some encouraging momentum with its systems and Fresenius Med Care AG (NYSE:FMS) has gotten involved in the in-home market as well. While Baxter likely won't be on the market with an approved in-home system before 2013, this is a market that has been long in coming and could hold some reasonable financial potential as it should allow better patient outcomes at the same (or lower) cost to the government. (To find out more about health care investment, check out: Investing In The Healthcare Sector.)

The Bottom Line
Of course Baxter has fierce competition - whether it's from Hospira (NYSE: HSP) in injectables and infusion, CareFusion (NYSE:CFN) in pumps, Grifols (Nasdaq:GRFS) in plasma, or Fresenius in renal care. Thus far, though, Baxter has more than held its own and its biologics business is a strong and profitable business.

That said, Baxter's prospects as a stock are more confounding. Although growth is not great, it has a better trajectory than many other large health care companies, and that pipeline holds the potential of boosting growth in the not-so-distant future. Right now, Baxter looks like a good hold but just not quite a good buy. See a pullback back to around $50 or so, though, and this becomes a much more interesting stock for most investors.

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