Baxter shares stay healthy in 2008 on steady demand for low-cost, life-saving medical productsMatthew Perrone
October 17, 2008 - 4:09 p.m.
WASHINGTON (AP) - Amid a stock market and economy that lately appears to be on life support, Baxter International Inc. has managed to stay healthy this year.
Thanks to a business model focused on simple, lifesaving medical products, Baxter has thrived despite the slowing economy. Analysts say what sets the company apart is an intense focus on inexpensive, critical therapies used in hospitals every day.
"The products they offer aren't high-tech things that might be optional or deferrable," said Aaron Vaughn, an analyst with Edward Jones. "They are health care staples that people need to maintain their level of health."
Deerfield, Ill.-based Baxter is one of fewer than 30 companies in the S&P 500 Index in positive territory for the year. Shares of the company are up about 1.76 percent for the year, while the S&P 500 is down about 35 percent in the same period and the Dow Jones Industrial Average is down about 32 percent as a slowing economy and tight credit markets have unnerved investors.
To be sure, Baxter's gain for the year is slight, and any further downturn in the market could send it into the red. But the company so far has shown resilience in the bear market.
Investors generally view health care stocks as safe havens during times of economic trouble because spending on medicine is more consistent than on nonessential goods and services. But that sentiment hasn't been enough to raise shares of most companies in the sector, including Johnson & Johnson. Shares of the health care giant are down 4.8 percent for 2008, despite double-digit earnings growth for two of the last three quarters.
Nearly half of Baxter's business comes from its bioscience unit, which makes plasma-based drugs to treat bleeding and immune-system disorders and other ailments. A close second is the company's drug-delivery unit, which makes vials, syringes and intravenous solutions. The rest of the company's business comes from treatments for kidney dialysis.
"If you look at their business, it's the building blocks of delivering health care," said Leerink Swan analyst Rick Wise. "If your kidneys don't function, then you will absolutely need dialysis, and they dominate the market."
Baxter reported Thursday its third-quarter profit jumped 19 percent to $472 million. The performance beat Wall Street expectations, and Baxter raised its full-year outlook.
"Our company continues to benefit from the power of our diversified health care model, with each of the businesses and regions making significant contributions," Chief Executive Bob Parkinson said during a company earnings call.
Vaughn of Edward Jones attributed the company's steady earnings growth to its strong management.
Citigroup analyst Matthew Dodds said in a note that Baxter has minimal exposure to consumer spending, giving it even more insulation from the slowing economy than competitor J&J.
"We wouldn't characterize any of these markets as 'elective' in nature and should stand up well in an economic downturn," Dodds wrote in a note to investors. He also noted that unlike such peers as Pfizer Inc. and J&J, Baxter does not face any looming patent expirations on its drugs.
While Baxter is primarily known as a seller of simple, medical staples, it has begun ramping up spending on several experimental therapies, including a bird flu vaccine, and adult stem cells to treat heart disease. Baxter announced a 25 percent increase to its research and development budget last quarter, to $222 million.
http://www.canadianbusiness.com/markets/market_news/article.jsp?content=D93SF3U80
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