4. Baxter International Inc. (NYSE:BAX)
Glenview Capital’s Stake Value: $171.44 million
Percentage of Glenview Capital’s 13F Portfolio: 3.47%
Number of Hedge Fund Holders: 45
Founded as a manufacturer of intravenous therapy, Baxter International Inc. (NYSE:BAX) is a medical equipment company that focuses on therapy and products for acute and chronic medical conditions, including kidney diseases. As of Q1 2022, Baxter International Inc. (NYSE:BAX) was a part of 45 hedge funds’ portfolios. Generation Investment Management was the biggest shareholder of the company with 16.4 million shares worth $1.27 billion.
Stifel analyst Rick Wise maintained a Buy rating on Baxter International Inc. (NYSE:BAX)’s shares, with a price target of $75, down from $85. The analyst added that the price target revisions “do not represent any fundamental shift in our positive long-term thinking for the MedTech industry or the potential for broad-based growth reacceleration”.
According to the firm’s Q1 2022 13F filings, Glenview Capital owned 2.21 million shares of Baxter International Inc. (NYSE:BAX) worth $171.44 million, representing 3.47% of the fund’s portfolio.
Here is what Cooper Investors had 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 the 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, optimising the cost structure. Baxter were 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 look like they are 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.”
