Piper: Baxter's Organic Cash Being Overlooked, Own Shares Heading Into May Analyst Day

Piper Jaffray’s Brooks E. West believes that despite Baxter International Inc’s BAX shares trading close to their 52 week highs, there is potential for significant upside and that the upcoming analyst day on May 9 could serve as a material catalyst.

The analyst upgraded the rating on Baxter International from Neutral to Overweight, while raising the price target from $39 to $58.

Underappreciated FCF

West mentioned that an analysis of the company’s ability to drive organic free cash flow “underpins the current BAX bull thesis of substantial operating leverage and potential portfolio management.”

The analyst believes that Baxter International’s free cash flow is underappreciated and offers the company the optionality for a larger deal or even multiple bolt-on deals to drive growth.

Outlook

West expects CEO Joe Almeida to “make a statement at the upcoming analyst day by raising the company’s long-range plan.”

In addition, “given only one generic cyclophosphamide entrant has entered the market,” West believes that Baxter International would report robust 1Q results on April 26.

“We believe the next leg higher in BAX shares will be driven by a combination of margin expansion and M&A, and we believe that by focusing on reducing capex and working capital requirements to drive FCF,” the analyst added.