On Dec 5, 2014, Zacks Investment Research downgraded Baxter International Inc. (BAX) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The downgrade primarily reflects growing headwinds over the impending split of Baxter’s biopharmaceuticals and medical device segments into two independent companies. This is expected to remain an overhang on the stock until the process is complete (expected mid-2015).
Although Baxter reported a decent third -quarter 2014 and raised its revenue guidance for the full year, slashed annual earnings per share guidance is a concern. Further, we believe that higher operating expenses will continue to hurt profits at least over the next 12 months.
A strong product pipeline and strategic collaborations represent significant value drivers for Baxter. The company also boasts a strong product portfolio for the treatment of Hemophilia A. In the third quarter, Baxter experienced double-digit growth for its hemophilia therapies, driven by strong demand for ADVATE and FEIBA (an inhibitor therapy).
Moreover, the company continues to expand its product portfolio by winning approvals for new drugs and products (OBIZUR, HYQVIA and RIXUBIS). However, Baxter combats intense competition in the hemophilia franchise. Moreover, lackluster hospital spending environment also remains a major concern.
Owing to the present adversities, analysts remain reasonably apprehensive, as is evident from the downward estimate revisions. Over the last 60 days, the Zacks Consensus Estimate fell 5.4% (28 cents) to $4.88 per share for 2014 while the same for 2015 declined 11.2% (59 cents) to $4.69.
Stocks to Consider
While we choose to avoid Baxter at present, better-ranked stocks include GW Pharmaceuticals (GWPH), ICU Medical (ICUI) and OraSure Technologies (OSUR). All three sport a Zacks Rank #1 (Strong Buy).
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