Baxter Investors Looking For Better Spot; BMO Downgrades Stock

In a report published Tuesday, BMO Capital Markets analyst Joanne Wuensch downgraded the ratings on

from Outperform to Market Perform, while reducing the price target from $80 to $36, following the spin-off of

. "All medtech spins work, or so the theory goes, and largely this is true. This is how we approached the Baxter spin of Baxalta, its BioScience business, which began trading separately on July 1, 2015," analyst Joanne Wuensch wrote. Post spin, Baxter's shares are trading at a "healthy premium" to its peers. Wuensch believes that the higher valuation could be on account of the "anticipation of "spin success," expectations that guidance is simply too low, and in the valuation of the Baxalta retained equity stake (and assumptions for deployment)." Wuensch stated that the decision to spin was "quite sound" and the guidance was "likely too low," while adding that too much was already "baked" into the stock. Investors would begin absorbing "the spin dynamics and look for a better spot to be more constructive on the name," the report added. Wuensch expects Baxter's revenue to grow in the "low-single-digits" through 2015-2017, "heading toward the 4% management target in 2020." The EPS estimates for 2015 and 2016 have been reduced from $4.25 to $1.36 and from $4.30 to $1.45, respectively.