Baxter International Inc. (BAX), through its subsidiaries, provides a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products.

Image Source: Pixabay

Market Leader

Baxter International was founded in 1931 by Dr. Don Baxter to make and distribute intravenous solutions. In 1935, Baxter added an R&D function that has been the source of innovative medical products and solutions for nearly 90 years. In addition to internal research and development, Baxter has grown through acquisitions and collaborations and now sells its products in more than 100 countries.

In 2015, Baxter spun off its biopharmaceutical business, Baxalta, while retaining a 19.5% ownership stake. In 2016, Baxter disposed of the remaining ownership, which resulted in a $4.4 billion gain. Following the spin-off, Baxter’s new management team has focused on increasing efficiencies and new medical innovations. The current goal is for 5% annual organic sales growth through new product launches and double-digit growth in adjusted EPS and free cash flow generation.

Acquisitions and collaborations will add to financial results. For example, in 2020, Baxter acquired Seprafilm Adhesion Barrier for $342 million in cash. Seprafilm is used for patients undergoing abdominal or pelvic laparotomy. More recently, Baxter acquired rights to Caelyx and Doxil, chemotherapy medicines, for $325 million.

Baxter announced an agreement with Moderna for Baxter’s BioPharma Solutions business to provide fill/ finish sterile manufacturing services and supply packaging for approximately 60 to 90 million doses of the Moderna COVID-19 vaccine in 2021. This partnership follows earlier agreements announced with BioNTech and Novavax to provide manufacturing services for their respective vaccines.

Solid Financial Results

Baxter International reported second-quarter sales increased a healthy 14% to $3.1 billion with net income increasing 22% to $301 million and EPS jumping 23% to $0.59. Sales within the U.S. exceeded $1.6 billion with international sales approximating $1.5 billion.

Among Baxter’s product categories, growth was led by BioPharma solutions, Advanced Surgery, and Medication Delivery, which each delivered double-digit growth on a reported and constant currency basis. BioPharma’s 49% constant currency growth was driven by multiple COVID-19 manufacturing collaborations. Performance in Advanced Surgery and Medication Delivery reflected favorable year-over-year comparisons resulting from a recovery in the pace of elective surgeries and hospital admissions in many markets following the height of the pandemic.

For the full 2021 year, Baxter International expects sales growth of approximately 8% with earnings in the range of $2.82 to $2.88 per share, representing 32% to 35% growth over last year.

Healthy Cash Flows

Baxter generates healthy free cash flows which have topped $6 billion over the last five years. Baxter’s disciplined capital allocation strategies include reinvesting in the business for sustainable growth, improving margin performance, returning capital to stockholders through dividends, repurchasing shares, and pursuing accretive merger and acquisition opportunities.

During the first half of the year, Baxter generated $525 million in free cash flow, a 58% increase over the prior-year period. The company returned $814 million to shareholders through dividends of $249 million and share repurchases of $565 million. Baxter has $1.3 billion remaining authorized for future share repurchases. Baxter has paid a strong and growing dividend, which has compounded at a 17.1% annual rate over the last five years. The dividend was increased 14% earlier this year to $1.12 per share and currently yields a healthy 1.5%. Baxter targets a 35% dividend payout over time, which provides plenty of runway for future dividend increases. Long-term investors may want to inject Baxter International into their portfolio, a high-quality market leader with solid financial results and healthy cash flows. Buy.