Baxter: Unique Expertise

12/18/2013 8:00 am EST


Our latest featured recommendation is a global, diversified healthcare company with a unique combination of expertise in medical devices, pharmaceuticals, and biotechnology, notes Ingrid Hendershot in Hendershot Investments.

Founded in 1931 to make intravenous solutions, Baxter International (BAX) makes products that target hemophilia, immune disorders, cancer, infectious diseases, kidney disease, and other chronic and acute conditions.

In addition to internal R&D, Baxter has grown through acquisitions and collaborations. It recently completed the acquisition of Gambro AB, a privately held global medical technology company and leader in dialysis products, based in Lund, Sweden.

The transaction further enhances Baxter's global renal leadership, and provides the company with comprehensive products and therapies to meet the needs of patients around the world, in the large, and growing, dialysis market.

During the past quarter, Baxter and Cell Therapeutics jointly announced an exclusive global licensing agreement to develop and commercialize pacritinib, which is in Phase III development for patients with myelofibrosis, a chronic malignant bone marrow disorder.

In addition, Baxter and Coherus Biosciences announced that they have entered into an exclusive collaboration to develop and commercialize a biosimilar to etanercept for certain international markets.

Biosimilars are intended to be used in place of existing, branded biologics, to treat a range of chronic, and often life-threatening diseases, and have the potential to reduce costs and expand patient access. Under the agreement, Baxter will make an upfront payment of $30 million.

Year-to-date, Baxter generated $1.1 billion in free cash flow and returned significant value to shareholders through $757 million in dividends and $863 million of share repurchases, at an average cost of about $69.60 per share.

Healthy cash flows, from operations of approximately $3.3 billion, are expected for the full 2013 year, supporting Baxter's dividend, which has compounded at a 14.5% annual rate over the last five years, and currently yields 2.9%.

Long-term investors may want to inject Baxter International, a high-quality market leader with solid financial results and healthy cash flows, into their portfolio. We rate BAX a Buy.

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