Stock Pitch: Baxter International Inc. (BAX)

50 %
50 %
Information about Stock Pitch: Baxter International Inc. (BAX)
Finance

Published on December 21, 2013

Author: tangentstylestorytelling

Source: slideshare.net

Description

2013-12-06 -- A quick deck a colleague and I made for a class where we manage a share of our university's endowment. We cover healthcare, and this was our new equity suggestion for Fall 2013.

BAXTER INTERNATIONAL INC. NYSE: BAX “GROWTH FOR THE PEOPLE WHO REMOVE YOUR GROWTHS” SECTOR: HEALTHCARE RAVI PRAKRIYA & [STUDENT COLLEAGUE] FIN XXX – [COURSE NAME] [PROFESSOR]

AGENDA I. Firm Overview II. Past Performance III. Investment Thesis IV. Qualitative Analysis V. Valuation VI. Investment Summary VII. Portfolio Management VIII. Questions IX. Appendix

FIRM OVERVIEW • Baxter International is a producer of medical equipment and pharmaceuticals, based in Deerfield, Illinois • Medical equipment market leader: IV fluids and systems, Dialysis, infusion pumps, prefilled syringes, and inhaled anesthetics • BioScience (Pharma/Biotech): protein and plasma therapies (hemophilia and immune disorders), vaccines, and biological sealants used to close surgical wounds • Target market: hospitals, nursing homes, dialysis centers, and laboratories, primarily through direct sales representatives and wholesalers

FIRM OVERVIEW • Market leading product portfolio “More than two thirds of Baxter's revenue stems from marketleading products, a tribute to its global competitive advantages with products like Advate and Gammagard”

FIRM OVERVIEW

FIRM OVERVIEW

FIRM OVERVIEW • Geographically diversified revenue stream • “Emerging markets are a prime source of growth for many drug firms, and hemophilia demographics point to a large unmet need in countries such as Brazil, Russia, and China” • “HyQvia, a long-acting version of Baxter's immunoglobulin product Gammagard, recently received regulatory approval in Europe and should launch in the U.S. in 2014. HyQvia's improved convenience should translate into market share gains and better pricing power”

PAST PERFORMANCE • Baxter has significantly underperformed the S&P 500 over the past 5 years, 1 year, & YTD • Earnings have continued growing, implying multiple contraction

INVESTMENT THESIS • Market is not rewarding organic and merger driven growth • 2013 -- Hemophilia Compound Acquisition ($700.0mm) • 2012 – Gambro AB ($4.0 bn) • Institutional Owners • Strong Balance Sheet

INVESTMENT THESIS “The medical device excise tax, and lower reimbursements are likely to put financial pressure on smaller companies, which, in turn, will adversely affect their valuations. This will allow bigger companies, pressured by government demands to lower prices, to consider acquisitions of innovative products” -- Standard & Poor’s [August 2013]

INVESTMENT THESIS • BAX has met or exceeded Wall Street EPS estimates every quarter since Q4 2003 (80% beat rate) • “Simply put, we have a tough time arguing for outperformance or a premium multiple at Baxter in the face of downward revisions” – J.P. Morgan [9/30/13] • Street doubts ability of management to integrate another acquisition into core business

QUALITATIVE ANALYSIS Strengths Weaknesses • Barriers to Entry in Core Businesses • Diversified Offerings • Intellectual Property • Superior Pipeline and R&D Capability • Capacity constraints limiting growth (Plasma) • Capital Intensive • Chronic treatment therapy reduction Opportunities Threats • Emerging Market Demand • Affordable Care Act • Growth of high-margin product (RF-VIII) • Biogen’s release of Alocate • Competition with Bayer in European market • Challenge to integrate recent acquisitions • Pricing Pressure

QUALITATIVE ANALYSIS • ACA represents critical opportunity • United States remains a critical and growing global supplier of healthcare equipment

QUALITATIVE ANALYSIS • North American Demographic shifts favor Baxter product lines and chronic treatment

VALUATION DISCOUNTED CASH FLOW VALUATION Enterprise Value to Equity Value PROJECTED USD (mm) 2013 Revenue 16,177 YoY Growth 14.00% EBIT 3,235 Margin 20.0% Tax Rate (%) 20.3% Tax 657 NOPAT 2,578 Capex (1,618) Margin 10.0% D&A 1,091 Margin 67.4% ∆NWC (291) Margin (1.8%) FCF 2,343 Terminal Growth PV of CF 2,169 Enterprise ValueFlow NPV of Free Cash to Equity Value 2014 18,118 12.00% 3,624 20.0% 20.3% 736 2,888 (1,449) 8.0% 977 67.4% (362) (2.0%) 2,778 2015 19,930 10.00% 3,986 20.0% 20.3% 809 3,177 (1,196) 6.0% 806 67.4% (399) (2.0%) 3,186 2016 21,524 8.00% 4,305 20.0% 20.3% 874 3,431 (861) 4.0% 580 67.4% 646 3.0% 2,505 2,382 2,529 1,841 2017 22,815 6.00% 4,563 20.0% 20.3% 926 3,637 (456) 2.0% 308 67.4% 456 2.0% 3,032 38,452 40,515 Enterprise Value + Cash and Near Cash - Total Debt - Minority Interest Total Equity Value Shares Outstanding Current Price Value per Share Premium / (Discount Price) WACC 84.13 7.00% 7.50% 8.00% 8.50% 9.00% 49,436 49,436 3,270 5,930 46,776 556 66.70 84.13 26.13% Terminal Growth Rate 1.5% 87.26 79.49 72.92 67.29 62.41 2.0% 94.83 85.68 78.06 71.61 66.08 2.5% 104.07 93.10 84.13 76.65 70.33 3.0% 115.63 102.18 91.42 82.61 75.28 3.5% 130.48 113.52 100.32 89.77 81.13

VALUATION • BAX trades at a slight discount to its peer group • Market appears unimpressed by reinvestment in business

INVESTMENT SUMMARY • Market recognition of well-diversified growth business • Favorable firm positioning and expansion strategy • Tail wind from Affordable Care Act • Demographic shifts • Globalizing market for products • Poised to continue string of acquisitions • Valuation indicates asymmetric upside • Catalysts: • Accretion from recent acquisitions • Resolution of uncertainty regarding Biogen’s Alocate • BRICS Distribution & Expansion

PORTFOLIO MANAGEMENT • Funding the addition to the portfolio • Sell UHS – Excellent 5Y, 1Y, and YTD Performance • • • Sector has appreciated with equal speed Challenges associated with ACA Continued pricing pressure and lack of growth • Reduce Cash Holdings? • Sector Allocation • Healthcare represents 17% of US GDP • Greatest number of holdings in portfolio • Recommend maintaining sector weighting

QUESTIONS? THANK YOU FOR YOUR TIME AND ATTENTION

APPENDIX – WALL ST ESTIMATES

APPENDIX – MORNINGSTAR

APPENDIX – RELATIVE PRICING

Add a comment

Related presentations

Related pages

BAX Stock Quote - Baxter International Inc. Stock Price ...

Baxter International Inc. NYSE: BAX GO. Set Alerts. Find a ... Baxter's stock gets a boost after Dan Loeb's hedge fund increases stake, again.
Read more

BAX:New York Stock Quote - Baxter International Inc ...

Stock analysis for Baxter International Inc (BAX: ... Stock analysis for Baxter International Inc (BAX: ... One Baxter Parkway
Read more

BAX: Summary for Baxter International Inc. Commo- Yahoo ...

Baxter International Stock: 3 Reasons Why BAX Is a Top Choice ... Baxter to Present at the Barclays ... Baxter International Inc. provides a portfolio ...
Read more

BAX Interactive Stock Chart | Yahoo! Inc. Stock - Yahoo ...

Power Pitch; Talking Numbers; ... Baxter International Stock: 3 Reasons Why BAX Is a Top Choice for Momentum Investors. ... Baxter International, Inc. ...
Read more

BAX Historical Stock Quotes - Baxter International Inc ...

Updated historical stock quotes for Baxter International Inc. ... Historical quote for: BAX. Friday, February 27, 2015. Closing price: Open ...
Read more

BAX stock quote - Baxter International Inc. Common Stock ...

Company Description (as filed with the SEC) Baxter International Inc., through its subsidiaries, provides a broad portfolio of essential renal and hospital ...
Read more

BAX Baxter International Inc XNYS:BAX Stock Quote Price News

Today's real-time BAX stock quote Baxter International Inc ticker symbol XNYS:BAX price, news, financial statements, historical, balance sheet. Menu. Join.
Read more

BAX - Baxter International Inc Stock quote - CNNMoney.com

Baxter International Inc (NYSE:BAX) Add to Watch List. Set Alert. ... Baxter Could Finally Break Its Trading ... Most stock quote data provided ...
Read more

Baxter International Inc. (BAX) Real-Time Stock Quote ...

BAX Real Time Stock Quote - Get Baxter International Inc. (BAX) ... Baxter International Stock: 3 Reasons Why BAX Is a Top Choice for Momentum Investors
Read more