Despite the failure of a late-stage Alzheimer's drug study, announced Tuesday, Baxter remains a compelling investment.
Baxter International (ticker: BAX) had been studying the use of immunoglobulin in patients with mild to moderate Alzheimer's disease for 18 months. But the drug and medical-device company said Tuesday that Phase III of the clinical trial failed to reduce cognitive declines and preserve functional abilities in those patients. (Baxter has been spending about $40 million on its Alzheimer's program, which amounts to a small part of its budget at 4% of spending.)
"While the headline is disappointing, we believe expectations were low, and this may prove a clearing event for the stock," writes Joanne Wuensch, an analyst at BMO Capital Markets.
Baxter, down more than 3%, or $2.30, to $68.01 midday Tuesday, has underperformed its peers this year even as competitors, including Eli Lilly (LLY), have struggled to produce Alzheimer's treatments.
However, Baxter plans to release dozens of new products, and more than two-thirds of its revenue comes from products that are market leaders in their categories.
Baxter made its largest acquisition in December when it purchased Gambro for $4 billion. That should yield significant opportunities as Gambro is a big producer of hemodialysis in hospital settings, which dovetails nicely with Baxter's at-home dialysis business (see Barron's Take, Dec. 4, 2012).
Also, emerging markets present a significant growth opportunity in the next several years. Baxter is expected to produce $15.5 billion in revenue this year, and foreign markets comprise about 60% of revenue. Emerging markets could represent a third of revenue in coming years.
In April, Citigroup analyst Matthew J. Dodds noted that Baxter is better positioned than most of its medical-technology competitors because it has "a higher-than-average presence in emerging markets, a more unique footprint by being in the plasma therapeutics market, and a higher concentration of sales in…markets such as renal dialysis, bio-surgicals and fluid systems."
The company Monday raised its dividend, underscoring the strength of its cash flow. The yield will jump from 2.6% to roughly 2.9%.
Baxter trades at 14.6 times estimated 2013 earnings of $4.65 per share, a slight discount to the industry. The median analyst price target for the stock is $75, or roughly 10% above the current price.
Smaller direct competitor CareFusion (CFN), whose shares have rallied 20% this year, is trading at more than 15 times forward earnings.
Baxter stock is up less than 3% so far this year.
Baxter's earnings growth this year may be tepid, at nearly 3% above earnings of $4.53 per share in 2012. But long term, analysts are looking for earnings growth of roughly 9%.
Baxter's opportunities outweigh the challenges it faces in developing an Alzheimer's treatment, and its dividend should add a nice salve for portfolios.
E-mail: dimitra.defotis@barrons.com
http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHlxQ6LhloIVv05ikr2_zTto-QEPA&url=http://online.barrons.com/article/SB50001424052748704253204578468832759931550.html?mod=BOL_twm_da
0 comments:
Post a Comment