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Ozeimpic Makes Kidney Dialysis Obsolete?
Kidney disease is one of the most difficult to live with, requiring constant dialysis that costs a fortune.
So, it’s no wonder markets cheered Ozeimpic, the wonder weight-loss drug, when preliminary results showed it could slow the progression of chronic kidney diseases.
The news sent stocks like Baxter International (BAX), a dialysis equipment manufacturer, spiraling.
That got the attention of financial pros, according to our Trackstar Data.
They began digging into the company’s financials, looking for clues to its future.
While we don’t believe Ozeimpic will solve kidney disease, Baxter faces some serious valuation and acquisition headwinds that may cap share price for several years.
Baxter International isn’t your run-of-the-mill healthcare company. Specializing in critical care, nutrition, renal, hospital products, and surgical care, Baxter is a cut above the rest in driving healthcare innovation. By focusing on unmet needs in medical treatments, they’re not just saving lives—they’re redefining quality care.
Their portfolio ranges from IV therapies and infusion pumps to dialysis systems and surgical products.
Serving hospitals, healthcare providers, and patients in more than 100 countries, this company brings “global” to a whole new level.
Fun fact: they distribute one-third of the world’s blood and plasma products.
Baxter segments its business into the following areas:
Recently, Baxter announced better-than-expected quarterly earnings, sending investors into a collective happy dance.
Net revenues increased by 6%, and they even initiated a $2 billion share repurchase program.
However, news that wonder drug Ozeimpic delayed the progression of chronic kidney disease sent Baxter and DaVita (DVA) into a tailspin.
Compared to Baxter’s dialysis machines, Ozeimpic would be a MUCH cheaper alternative. And that’s not good for its top sales category.
In late 2021, Baxter acquired Hillrom for $12.4 billion. Hillrom, a company that provides products and services for patient care from the hospital to home, is expected to add to Baxter’s connected care.
Source: Stock Analysis
Baxter’s revenues steadily in the mid-single digits for the past decade, with a few notable exceptions.
However, management forecast ~2% sales growth YoY, which didn’t impress investors.
Margins have declined substantially as the company took charges of $293 million and $42 million in 2023 and 2022 respectively related to its execution to optimize its organization and cost structure. They also took a $243 million non-cash property impairment when they ceased production of dialyzers at one of its facilities.
Baxter took on Hillrom’s debt as part of the acquisition, sending net debt from $3.1 billion in 2020 to $15.2 billion today.
Interest expenses subsequently climbed from $153 million to $500 million per year.
At the same time, cash from operations has dropped from around $2 billion to $1.6 billion per year.
Nonetheless, that’s more than enough to cover the $584 million in dividends, and $750 million in annual capex, leaving roughly $250-$275 million to pay back debt, which isn’t much.
However, Baxter expects to achieve $250 million in synergies from the acquisition sometime next year.
Source: Seeking Alpha
Baxter trades at fairly cheap levels. Its P/E ratio looking forward isn’t great. However, that’s being affected by these one-off charges.
A better metric, price-to-cash flow, shows Baxter at 10.7x, second cheapest to InMode Ltd. (INMD).
All other peers trade at significantly higher multiples.
Interestingly, Baxter trades at the lowest price-to-sales ratio.
Source: Seeking Alpha
Baxter’s revenue growth isn’t the greatest. While it can deliver high-single-digit gains, many of its peers land in the double-digit category, especially looking back over several years.
And free-cash-flow as well as earnings have declined for Baxter due to its acquisition, while its peers saw sizable increases.
Source: Seeking Alpha
Our biggest concern is Baxter’s margins.
Its gross margins are the lowest of the group, with EBITDA and EBIT margins not that great either.
Plus, its free cash flow margin is below 10%, while INMD is as high as 27%.
Our Opinion 4/10
We’re not yet sold on the transformational story here.
While the Ozeimpic news created a potential opportunity, we’d like to know more about the Hillrom acquisition.
If Baxter can turn that into a win, then we could see some decent upside.
However, with interest rates compressing multiples, we’re not sure Baxter will ever see its former glory.
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