BAX_0702.doc

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1 Δεκ 2012 (πριν από 4 χρόνια και 8 μήνες)

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Baxter Healthcare
-

BAX




Company Profile:



Baxter

International Inc.

is a global

healthcare company that, through its
subsidiaries assists health
care professionals
and their patients with treatment of
complex medical conditions including
hemophilia, immune disorders, kidney
disease, cancer, trauma and other
conditions. With 2006 sales of $10.4 billion,
and approximately 44,500 employees,
Baxter app
lies its expertise in medical
devices, pharmaceuticals and
biotechnology to make a meaningful
difference in patients' lives
.

Baxter International, Inc. is a diversified medical products and services company.
It provides medical devices,
pharmaceuticals, a
nd biotechnology that
enable healthcare professionals and their
patients in treating various medical
conditions, including hemophilia, immune
disorders, cancer, infectious diseases,
kidney disease, trauma, and other
conditions worldwide. Baxter
Internatio
nal distributes its products
through independent distributors, drug
wholesalers, and specialty pharmacy or
homecare companies to hospitals, clinical
and medical research laboratories, kidney
dialysis centers, rehabilitation centers,
nursing homes, doctors’

offices, and to
patients at home under physician
supervision. The company was
incorporat
ed in 1931 and is headquartered



Ticker:

BAX

Sector:

Healthcare

Industry:
Medical Instrument
& Supplies


Investment Recommendation:


HOLD


Current h
olding shares:

450
shares


Pricing Fact:

Closing price: 56.34 (Jun. 28
2007)

52 wk high: 58.29

52 wk low: 36.14


Profitability & Effectiveness
(ttm):

Volume:

3,605,390

Avg Vol (3m):

3,203,390

Market Cap:

36.71B

P/E (ttm):

24.45

EPS (ttm):

2.30

Div & Yield:

0.67 (1.20%

Market Data:

Shares Outstanding (M) :
651.52


Chia
-
Jung Lin


clz
54@mizzou.edu







in Deerfield, Illinois.

Earlier this year Baxter was named to Innovest Strategic Value Advisors’ “Global
100 Most Sustainable Corporat
ions in the World” list, the only US healthcare
company to be named each year since the list’s inception, and one of the “100
Best Corporate Citizens” by
Corporate Responsibility Officer

magazine.


Competition


Baxter International

s main competitors a
re Bayer, Boston Scientific Corp.,
and Wyeth.

Among all the important indicators such as market capital, revenue,
gross margin, net income, P/E ratio

etc, BAX performs worse than any other
three competitors.
However, in PEG (P/E over growth rate) BAX outpe
rforms
Boston Scientific Corp. and Wyeth.

DIRECT COMPETITOR COMPARISON





BAX

BAY

BSX

WYE

Industry

Market Cap:

36.71B

57.55B

22.75B

77.13B

128.86M

Employ
ees:

48,000

106,000

28,600

50,060

151

Qtrly Rev Growth (yoy):

11.00%

22.70%

28.80%

11.00%

14.50%

Rev
enue (ttm):

10.64B

40.97B

8.29B

20.88B

36.93M

Gross Margin (ttm):

46.51%

47.64%

71.65%

73.36%

56.45%

EBITDA (ttm):

2.62B

7.20B

2.46B

6.88B

35.62K

Oper Margins (ttm):

18.57%

11.34%

17.08%

27.09%

-
6.00%

Net Income (ttm):

1.52B

2.15B

-
3.79B

4.33B

-
1.14M

EPS (ttm):

2.304

6.57

-
2.634

3.173

N/A

P/E (ttm):

24.45

11.46

N/A

18.07

29.62

PEG (5 yr expected):

1.67

N/A

4.47

2.2

1.59

P/S (ttm):

3.44

1.41

2.77

3.67

3.45



BAY

= Bayer AG

BSX

= Boston Scientific Corp.

WYE

= Wyeth

Industry

= Medical Instruments & Supplies








Accor
ding to the chart above, BAX

s growth rate (1 year) only falls behind BAY.
Moreover, BAX outperformed the S&P 500.
Overall, BAX performs pretty well
in this sector though at the same time needs to seek higher growth rate in the
long run.




Economic Conditions and Industry Environment


Most companies are increasing spending on R&D, new drugs, and on fighting
pending lawsuits.

S
ince the beginning of the year, healthcare costs have been on the
rise, causing consumers to cut in
to personal savings and household finances. Rising
healthcare industry costs and a shortage of skilled staff have convinced hospitals and
healthcare providers to look to adopt new technology to lower their operating costs.
Wireless LANs, VoIP deployments
, the RFID tagging of patients and hospital assets,
as well as extending care to remote patients via telemedicine applications all promise
to lower healthcare delivery costs.




The table below shows just how competitive Baxter really is in their indust
ry.
Out of 123 companies in their industry, Baxter ranks in the top 10% in five of the
seven major categories in which numbers are available.


Statistic

Industry Leader

BAX

BAX Rank

Market Capitalization

ACL

41.61B

35.08B

2 / 123

P/E Ratio (ttm)

THOR

278.93

25.35

29 / 123

PEG Ratio (ttm, 5 yr expected)

CSCX

4.49

1.67

12 / 123

Revenue Growth (Qtrly YoY)

CRDC

366.30%

N/A

N/A

EPS Growth (Qtrly YoY)

ACL

496.90%

N/A

N/A

Long
-
Term Growth Rate (5 yr)

SONO

60.0%

12.9%

46 / 123

Return on Equity (ttm)

ROCM

85.80%

26.45%

5 / 123

Long
-
Term Debt/Equity (mrq)

EYE

1.189

0.447

9 / 123

Dividend Yield (annual)

NURO

6.60%

1.20%

7 / 123


Overall, Baxter is one of the prime players in a high gr
owth industry.


Risks


Regulatory risks abound for Baxter. Pipeline candidates may not make it over
regulatory hurdles, let alone succeed in the marketplace. Innovation risk also looms for
existing product sets, and the firm risks being surpassed by new

entrants or established
competitors. Baxter's reputation has been tested by infusion pump problems. If the
firm does not solve those problems soon, large hospital customers may lose faith in
Baxter and jump ship in this important product line.


Moreover
, p
ossibly flattening reimbursement rates could restrict capital spending
by hospitals.

Amid continued but slowing U.S. economic growth, we could see
significant budgetary pressures on both government (Medicare and Medicaid) and
private pay customers. Thi
s situation is worsened by accelerating health care cost
inflation.

Finally, t
he time and money it takes to have the FDA to approve things
slows things down for Baxter.


Valuation


In order to calculate my beta, I used the spreadsheet the Portfolio Co
mmittee
gave us:



Inputs

Tax Rate

0.19

BV Debt

2,333.00

BV Equity

35,083.24

Unlevered Beta

0.99


Output

Levered Beta

1.04
3




After I had calculated my beta, I used the information the Portfolio Committee
gave us to calculate the Discount Rate:


Required Rate of Return = R
F

+ β (R
M

-

R
F
)



4.7% +
1.043

(3
%) =
7.83%


Warren Buffett Way Owners' Earnings Discount Model

assuming discount rate (k) of

7.83%



Owner Earnings in 2004:


Net Income


$ 1,397,000,000.00

Depreciation


$

575,000,000.00

Amortization


$
-


Ca p i t a l E x p e n d i t u r e s


$ ( 5 2 6,0 0 0,0 0 0.0 0 )

Own e r E a r n i n g s


$ 1,4 4 6,0 0 0,0 0 0.0 0






2006

Prior Year Owner Earnings

$

1,446,000,000.0

First Stage Growth Rate (ad
d)

8.0%

Owner Earnings

$


1,561,680,000.0

Discounted Value per annum

$

1,561,680,000.0












Sum of present value of owner earnings

$15,728,060,476.4





















Residual Value











Owner Earnings in year 10

$ 3
,121,805,546.1










Second Stage Growth Rate (g) (add)

2.50%










Owner Earnings in year 11

$ 3,199,850,684.7










Capitalization rate (k
-
g)

5.33%










Value at end of year 10


$ 60,034,722,039.40





















Pr
esent Value of Residual

$28,249,219,430.65










Intrinsic Value of Company

$43,977,279,907.10





















Shares outstanding assuming dilution

651,520,000










Intrinsic Value per share

$6
7.05














2006



I used a conser
vative first stage growth rate of 8%. The smallest 5
-
year growth
rate estimate I could find was 12.9%, or nearly 5% greater than what I used. I found
with the first and the second stage growth rates at the small amounts of 8% and 2.5%,
respectively, the
intrinsic value per share to be $67.
05
. The curr
ent stock price
closed at $5
6.34
, making Baxter undervalued. When I increased the first stage
growth rate to 12% and the second stage to 3%, I found the intrinsic value per share to
be $
70.41
, also making B
axter undervalued.



Stock Performance


BAX vs. S&P 500 (3 years)



In the past three years, the growth rate of BAX was higher than that of S&P 500.
But in the past 5 years, S&P 500 had more stable growth rate. See the chart
below.

BAX with S&P 500 (
5
years
)






BAX with Industry (3 years)







BAX with Industry (5 years)




BAX with Competitors (BAY, WYE, BS
X
) (
1

year)




As it shows above, during the recent year, BAY has
gro
w
n almost the most
among all the four companies. BAX has grown fast since this March.


BAX with Competitors (BAY, WYE, BS
X
) (3 years)





From the charts above, we can see that BAY had still performed the best.




BAX with Competitors (BAY, WYE, BS
X
) (5

years)





Technical Analysis (5 years, 100 days moving average)



Analysts Recommendation


(YAHOO! Finance)



Current
Month

Last Month

Two Months
Ago

Three
Months Ago

Strong Buy

2

2

2

2

Buy

4

4

4

4

Hold

4

4

3

4

Sell

0

0

0

0

Strong Sell

0

0

0

0



(The Wall Street Journal)


Strong Buy


2

Buy

4

Hold

4

Underperform

0

Sell

0


(
Reuters
)



1
-
5 Linear Scale

Current

1 Month
Ago

2 Months
Ago

1 Year
Ago

BUY (1)

1

1

1

1

OUTPERFORM (2)

5

5

5

4

HOLD (3)

4

4

4

10

UNDERPERFORM
(4)

0

0

0

1

SELL (5
)

0

0

0

0

No Opinion

0

0

0

0

Mean Rating

2.30

2.30

2.30

2.69






Recent News


Jun 28
th

Baxter International Inc. Earnings Conference Call (Q2 2007)

Scheduled to start Thu, Jul 19, 2007, 8:30 am Eastern




Baxter

operates in three segments: BioScience, Medication Delivery,
and Renal. BioScience segment manufactures plasma
-
based and
recombinant proteins used to treat hemophilia.



Its products include plasma
-
based therapies to treat immune disorders,
alpha 1
-
antitrypsin deficiency, and other chronic blood
-
related
conditions; biosurgery products for hemostasis, wound
-
sealing, and
tissue regeneration; and vaccines.



This segment also provides technologies used in adult stem
-
cell
therapies. Medication Delivery s
egment manufactures intravenous (IV)
solutions and administration sets, pre
-
mixed drugs
and so on.



It

also provides IV nutrition products, inhalation anesthetics for general
anesthesia, contract manufacturing services, and drug formulation and
packaging t
echnologies.



Its products include PD solutions and related supplies, and automated
PD cyclers that provide therapy to patients overnight.



Baxter International distributes its products through independent
distributors, drug wholesalers, and specialty phar
macy or homecare
companies to hospitals, clinical and medical research laboratories,
kidney dialysis centers, rehabilitation centers, nursing homes, doctors’
offices, and to patients at home under physician supervi
sion.


Jun 26
th

Sector Wrap: Diagnostics
Makers Rise

Diagnostics Makers Gain After Roche Offers $3 Billion for Ventana Medical




NEW YORK (AP)
--

Shares of diagnostic product makers were mostly
up Tuesday after Swiss pharmaceutical company Roche Holding AG
made a $3 billion hostile bid for Ventana

Medical Systems Inc.



Roche's offer, made late Monday, translates to $75 per Ventana share.
Ventana's board of directors is reviewing the offer.

Thomas Weisel
Partners analyst Peter Lawson said buyouts, and buyout premiums,
have been rising in the sector.

Roche has purchased four companies in
the last few months.



"The spate of acquisitions in the diagnostic space has reduced the
number of mid
-
stage diagnostic companies from seven to two in the
last four months," he said. "We continue to believe Luminex and

Cepheid are potential acquisition targets, based on the strength of their
underlying businesses and technology platforms."



Luminex Corp. shares hit a 52
-
week low in early trading, but gained 59
cents, or 5.1 percent, to close at $12.17.



Banc of America Se
curities analyst Jon Wood said other companies
could make their own bids for Ventana. Wood raised his price target for
the shares to $80 per share from $55.



Shares of Applied Biosystems Group rose $1.01, or 3.4 percent, to
$30.53.



Shares of Stryker Corp. a
dvanced 81 cents to $63.97.



Baxter International Inc. stock bucked the trend, losing 59 cents to
$54.47.



Recommendations




As far as I am concerned, to hold this or to sell it can be either way we
choose for some reasons. First, as the economist com
mittee report mentioned,
healthcare sector would be an important sector to catch and keep a certain
percentage of our portfolio. Regarding the gain/loss calculation, we can see that
BAX has grown well since being bought. But in accordance with the targeted

proportion of our portfolio, we should not invest any more money in healthcare
sector, and thus holding BAX would be proper. Second, to seek long
-
term
growth rate, BAX can help us achieve this goal. Because BAX is a stable
growing security, to keep stable

growth rate, we can consider holding it.
However, I am also pro selling some of it. Bayer is a much better stock for us to
think of investing in. Also Bayer can keep stable

growth rate in the long run
which

is

even much higher than Baxter. Though both hav
e limited space to grow,
Bayer has more and better opportunities than Baxter. So I am pro selling it, too.