Summary

• Baxter’s 8.7% 5-yr return on invested capital, ROIC, is quite a bit below its peers. TTM ROIC of 6.1% is about half the Industry ETF avg of 11.1%.
• Long-term debt ballooned from $5.8 billion at the end of 2020 to $17.1 billion as of March 2022. Goodwill assets also jumped to $9.8 billion with the acquisition of Hill-Rom.
• During the past 2 years, BAX has greatly underperformed its peers. I think it's time to take my 8.7% long term total annual return and move on.

Image Source: Baxter International

Baxter International (NYSE:BAX) is a diversified medical device and consumable supplier. Numerous BAX products and services are essential for medical care and patient health, and are critical for those with chronic health issues, such as dialysis therapies. Most of BAX revenues are from three operating units, Renal Care, Medication Delivery, and Pharmaceuticals. While the acquisition of Hill-Rom increases BAX hospital offering and could provide a boost to earnings, overall, I am unexcited with my current ownership of Baxter shares. For me, it's time to move on.

Baxter operates in areas of the medical field where consumer prices are not always an overriding issue. While their industry is ultra-competitive with several suppliers of very similar products, generally consumers are less concerned about the cost of their dialysis machine than the cost of their COPD inhaler or their blood pressure medicine. Most of BAX products are not as susceptible to political pressures to reduce prices to the public. While BAX offers pharmaceuticals, which usually have the most exposure to political pressure, many of their offerings are generic and/or are infusion-based. In the current environment of increasing backlash against high medical costs, it seems medical device and generic drug manufacturers are flying under the radar. I find this to be a very attractive investment attribute.

Baxter business is separated into 11 global operating components, including three new operating units with the recent acquisition of Hill-Rom. The operating units are grouped by: Renal Care, Medication Delivery, Pharmaceuticals, Nutrition, Advanced Surgery, Acute Therapies, Biopharma Solutions, Patient Support Systems (new), Front Line Care (new), Surgical Solutions (new) and Other. The largest units are Renal Care with $3.9 billion 2021 revenue, Medication Delivery with $2.9 billion, and Pharmaceuticals with $2.3 billion. Combined, these three units comprised 71% of BAX's 2021 revenues of $12.7 billion and 56% of estimated 2022 revenues of $16.1 billion, including $3 billion from the Hill-Rom Dec 2021 acquisition.

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