In this piece, we’ll take a look at the 5 Best Medical Device Stocks To Buy Now. For more such companies, go to 13 Best Medical Device Stocks To Buy Now.
5. Baxter International Inc. (NYSE:BAX)
Forward P/E ratio as of December 10: 14.27
Number of Hedge Fund Holders: 42
Founded in 1931, Baxter International Inc. (NYSE:BAX) is a medical equipment company. After acquiring Hillrom in late 2021, the company has added more to its hospital-based products. Baxter International Inc. (NYSE:BAX) primarily focuses on products for the treatment of kidney disease and acute medical conditions.
On October 12, 2022, Matthew Taylor, an analyst at Jefferies, started covering Baxter International Inc. (NYSE:BAX) with a price target of $62 and a Hold rating on the stock. According to the analyst, the company is currently facing macro pressures that will stay for a while, although he believes that the conditions are improving with time.
As per Insider Monkey’s database, 42 hedge funds owned stakes in Baxter International Inc. (NYSE:BAX) at the end of the third quarter. Generation Investment Management remained the leading stakeholder of the company at the end of Q3 2022.
Here is what Cooper Investors has to say about Baxter International Inc. (NYSE:BAX) in its Q3 2021 investor letter:
During the quarter we exited our position in Baxter, having originally bought in 2017 as a Low Risk Turnaround with clear Stalwart attributes. In essence, the core businesses were highly durable, providing life sustaining or saving medical products such as IV medication or pumps and dialysis machines.
They had been mismanaged prior to the company spinning off its biopharmaceutical business in 2015 which had generated most of Baxter’s operating profit. With a new CEO in Joe Almeida, who came with a successful track record leading another medical device company (Covidien) we identified three sources of value latency for the new standalone Baxter.
Firstly, optimizing the cost structure. Baxter was successful here – they were able to effectively double operating margins from low single digits to mid-to-high teens over a relatively short four-year period. Secondly, accelerating sales growth through a more focused R&D effort. This is inherently more difficult than cost optimisation and on this front success has been muted with only moderate impact to revenues from new product introductions. Finally, capital deployment through Baxter’s significantly under-levered balance sheet. Several smaller bolt-on acquisitions were nicely complementary to the existing portfolio, but in early September the company announced the acquisition of Hil-Rom Holdings, a medical device company with leading positions in bed systems and patient monitoring. The deal is significant at US$12.5bn in size, and exhausts all balance sheet latency in one fell swoop.
Whilst it is “EPS accretive” we believe the high single digit ROIC management are targeting over five years is most reflective of the financial merits of the deal. Put another way, despite visions of providing digital and connected healthcare (think a Baxter IV pump combined with a Hil-Rom smart bed), ultimately the combined entity will likely remain a low-to-mid-single digit grower. Baxter looks like it is getting bigger but not necessarily better.
This combination of uncertainty around the merits of the Hil-Rom acquisition and the underwhelming performance on the product development side of the business led us to conclude that the investment proposition today is less attractive relative to other opportunities.
