Baxter International Inc. (NYSE: BAX), however, management has warned of further declines in hospital admissions and in surgical volumes through the rest of the year relative to prepandemic levels.
The beta on BAX is 0.87.
Baxter recently reported 3Q20 results that beat both consensus revenue and earnings estimates. On October 29, the company reported net sales of $2.97 billion, up 4% on both a reported and constant-currency basis and up 3% on an operational basis. Sales beat the consensus estimate by $136 million. Adjusted EPS rose 12% to $0.83.
The company has developed a range of products to help treat COVID-19 patients. These EUAs are particularly important given recent studies showing that about 17% of hospitalized COVID-19 patients experience acute kidney injury (AKI).
Baxter has made progress with other pipeline products in recent months. On September 23, the company announced FDA approval of new formulations of Clinimix and Clinimix E, two parenteral nutrition injections that provide up to 60% more protein (amino acid) than prior formulations while delivering less dextrose. Designed to help improve the care of critically ill patients, the two new formulations will now be sold alongside the existing formulations for patients with lower protein needs. On July 9, it received FDA clearance for its Altapore Shape Bioactive Bone Graft, a next-generation bone graft substitute designed to enhance bone growth and help achieve fusion, for use in surgery. The new product configurations offer surgeons a range of options for surgery that are easy to adapt to patients’ needs.
EARNINGS & GROWTH ANALYSIS
Baxter organizes its businesses into three regions, Americas (roughly 52% of 3Q20 sales), EMEA (26%), and Asia Pacific (22%). During the third quarter, sales in the Americas rose 1% as reported and 2% in constant currency to $1.55 billion. Sales in the EMEA region rose 6% as reported and 3% in constant currency, to $777 million. Asia Pacific sales rose 10% as reported and 7% in constant currency, to $646 million.
Growth drivers in 3Q20 included the company’s Acute Therapies business, which grew 35% in constant currency to $177 million; its Advanced Surgery business, which grew 9% to $236 million; its Clinical Nutrition business, which grew 5% to $237 million; its Renal Care business, which grew 4% to $955 million; its Other business segment, which grew 4% to $147 million; and its Pharmaceuticals business, which grew 1% to $540 million. Nevertheless, growth was slightly offset by a 3% constant-currency decline in the Medication Delivery business, to $680 million.
It now expects low single-digit sales growth on a constant-currency and operational basis, up from its prior guidance for flat to low single-digit sales growth. It also expects full-year adjusted EPS of $3.02-$3.05. Management’s estimates assume low double-digit declines in hospital admissions and mid-single-digit declines in surgical volumes in 4Q20 compared to prepandemic levels.
Assumes a continued impact from the pandemic on surgical volumes and hospital admissions and a decline of roughly 8%.
FINANCIAL STRENGTH & DIVIDEND
Baxter pays a dividend, $0.98 annually – highlighting management’s confidence despite the impact of the pandemic.
MANAGEMENT AND RISKS
Jose Almeida is the company’s chairman, president, and CEO. He served as president of the Medical Devices division from October 2006 to June 2011. Mr. Saccaro was senior vice president and chief financial officer at Hill-Rom Corp. prior to rejoining Baxter in August 2014. He served as corporate vice president and treasurer of Baxter from 2011 to 2013.
Baxter faces regulatory risk. Many of its products are subject to approval by the FDA and by regulatory agencies in Europe and other markets. These products are also subject to reimbursement coverage decisions by insurers. Baxter also faces economic and exchange rate risks in its overseas businesses.
As many of the company’s products are used in a hospital setting, declines in elective procedures and lower rates of hospital admissions during the pandemic have hurt the company’s results. While results improved during the third quarter, we caution investors that a rise in COVID-19 cases could lead to additional business disruptions in the coming months.
Baxter has approximately 50,000 employees and manufacturing operations in more than 20 countries.
The shares initially recovered from a 12-month low in mid-March, rising from $69 per share to a high above $95. Conversely, if it reverses its recent trading pattern, we believe that it could face resistance between $82 and $83 per share.
We would consider returning BAX to our BUY list upon sustained margin growth or a return to prepandemic levels of hospital admissions.