Baxter Investors 'Know What They're Getting,' KeyBanc Says

Hospital and surgical product maker Baxter International Inc BAX is the kind of company that wins a bunch of "singles and doubles" but has no clear catalyst to drive material upside, according to KeyBanc Capital Markets.

The Analyst

KeyBanc's Matthew Mishan initiated coverage of Baxter with a Sector Weight rating.

The Thesis

Baxter manufacturers medically necessary products and the company enjoys a high market share across multiple health care segments, Mishan wrote in the note. The company deserves credit for recent new product launches and geographic expansions but these aren't notable enough to exceed management's 5% to 6% organic growth through 2023.

The company also guided to expand operating margin from 18.2%-18.4% in 2019 to 20%-21% in 2020 and to 23%-24% by 2023. The analyst said this would place the company's metrics closer to its peer-average which is a "viable aspirational goal" for management.

Mishan said Baxter has sufficient cash in the balance sheet and strong free cash flow to seek out larger M&A deals. However, investors have been expecting such a move for some time but management is taking a disciplined approach which also lowers the likelihood of delivering "more-attractive" targets. As such, investors "know what they're getting" in buying Baxter's stock.

Price Action

Shares of Baxter traded lower by 1% to $80.87 Wednesday afternoon.

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