1. Baxter International Inc. (NYSE:BAX)
Number of Hedge Fund Holders: 42
Baxter International Inc. (NYSE:BAX) is an American multinational healthcare company that focuses on products to treat serious ailments. In Q3, the company reported a 26% year-over-year growth in its net income at $450 million, driven by recovery from the pandemic period. Also, the global sales of Baxter International Inc. (NYSE:BAX) grew by 9% at $3.2 billion.
As per Insider Monkey’s data for Q3, 42 hedge funds reported owning stakes in Baxter International Inc. (NYSE:BAX), down from 46 in the previous quarter. The consolidated value of these stakes is over $3.48 billion, up from $2.9 billion in Q2.
As of Q3, Baxter International Inc. (NYSE:BAX) is the largest holding of Generation Investment Management. The hedge fund holds shares worth $1.66 billion in the company, which accounted for 6.93% of its 13F portfolio. Acknowledging the company’s new strategic acquisitions, JPMorgan reinstated its coverage on Baxter International Inc. (NYSE:BAX) with an Overweight rating and a $95 price target.
Cooper Investors mentioned Baxter International Inc. (NYSE:BAX) in its Q3 2021 investor letter. Here is what the firm has to say:
“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.”
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