“Flight to Safety or Better Performance”


in
   “Flight to Safety or Better Performance”
 
Baxter announced earnings last week and showed strong financial results for the fourth quarter that met or exceeded previously issued guidance.  Baxter is up 30% over the S&P 500 over the last year, but surprisingly, it is roughly the same over the S&P 500 Healthcare index.
 
 
Healthcare historically is a counter-cyclical sector which captures investor interest in down markets.  Possibly the nervousness induced by the election year and the likelihood that healthcare policy will get reviewed is causing some investors to find other safe havens.  Baxter appears to be ignoring all this intrigue and just delivering solid performance across all divisions.  While the continued strong performance of Bioscience is not surprising given the dominance of Advate and the strength of the IVIG markets, the Medication Delivery and Renal divisions also delivered double digit growth.
 
For the Fiscal Period Ending
2002
2003
2004
2005
2006
2007
Revenues
 
Bio-Science
3,096
3,269
3,504
3,852
4,396
4,570
Medication Delivery
3,311
3,827
4,047
3,990
3,917
4,231
 
 
16%
6%
-1%
-2%
8%
Renal
1,692
1,808
1,958
2,007
2,065
2,239
 
 
7%
8%
3%
3%
8%
Transfusion Therapies
-
-
-
-
-
223
Total Revenues
8,099
8,904
9,509
9,849
10,378
11,263
Source; Capital IQ
 
 
Renal growth has accelerated from a low of 3% in 2005 and 2006 to 8% in 2007 and a 12% growth rate in Q4 over Q3 indicating faster growth to come.  Baxter commented that the growth reflected “further gains in peritoneal dialysis patients in developed markets, as well as in emerging markets where many people with end-stage renal disease are currently not treated.”  Parsing this out it appears that (1) all the noise regarding EPO may be freeing up nephrologists to consider PD more often, and (2) China, the largest emerging market, is a tremendous success for Baxter Renal.
 
Baxter’s return to the $60 range should provide renewed confidence. With Amgen and DaVita under-pressure it’s encouraging to see this strong performance in our sector.