Company Split Boosts Baxter

02/26/2015 7:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

This featured value investing idea was founded in 1931 and is the original producer of commercially prepared intravenous (IV) solutions, explains J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Baxter International (BAX) currently makes and distributes medical products and equipment that focus on blood and the circulatory system. Operations in the US account for 43% of sales, Europe 29%, Asia-Pacific 16%, and Latin America and Canada 12%.

Baxter’s BioSciences division (43% of revenues) produces various clotting factors for hemophilia, as well as biopharmaceuticals for treating immune deficiencies, cancer, and other disorders.

The Medical Products division makes IV solutions and its Renal Care unit produces dialysis equipment.

In July 2014, Baxter sold the company’s commercial vaccines business to Pfizer for $635 million. The sale is part of Baxter’s plan to split into two companies in mid-2015 and to become centered on specific disease areas.

The sale will reduce Baxter’s sales and earnings somewhat, but it will enable the company to concentrate on new products with extraordinary potential.

Baxter’s unique intravenous immunoglobulin (IVIG) products with new delivery mechanisms and expanded indications are already producing impressive sales and earnings.

The proposed split into two companies, to be completed by mid-2015, will greatly increase shareholder value.

The biopharmaceutical unit will be Baxalta Inc., which will move into a new research center in Cambridge, Massachusetts. The original Baxter International will remain in Deerfield, Illinois and concentrate on developing life-saving medical products.

The company just reported better than expected fourth-quarter sales and earnings. Baxter has paid dividends every year since 1934 and carries Standard & Poor’s highest Quality Rating of A+.

Dividends and earnings have increased at a steady 10% pace during the past decade, which will continue well into the future.

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