Is Baxter Trading at a Premium Compared to Its Peers?

Baxter's 1Q16 Earnings Beat Estimates, Post Improved Margins

(Continued from Prior Part)

Valuation multiples

As of April 27, 2016, Baxter International (BAX) is trading at a forward PE multiple of 27.1x, higher than its peers Becton Dickinson (BDX), CR Bard (BCR), and ResMed (RMD).

The forward PE (price-to-earnings) ratio is a measure of a company’s growth. It is calculated by dividing a company’s stock price by its 12-month earnings estimate. The following graph compare the PE multiples of Baxter International and its peers.

Baxter’s fundamentals

Baxter International (BAX) has a strong product portfolio of hospital and renal products. It is focused on restructuring efforts after the spinoff of Baxalta, the company’s biosciences division, to position itself as a profitable and high-margin-growth company.

During 1Q16, Baxter registered strong growth with new product launches and momentum in the company’s key product portfolio. The company expanded across geographies with the launch of its new innovative products and plans to expand its market reach further with a strong product pipeline in 2016.

Moreover, the improvement in operational efficiencies due to the strategic restructuring and cost containment measures, along with the portfolio optimization initiatives taken by the company, led to a decline of ~13% in SG&A (selling general and administrative) expenses and ~5% decline in the R&D (research and development) expenses. Thus, the expansion in its operating margin was registered, which amounted to ~10.5% for 1Q16.

To learn more about Baxter’s valuation and growth drivers, please read Getting to Know the New Baxter: Key Growth Drivers for 2016.

Investors interested in trading in medical device companies can look into the Guggenheim S&P 500 Equal Weight Health Care ETF (RYH). Top medical device holdings in RYH are Edwards Lifesciences, Boston Scientific, Zimmer Biomet Holdings (ZBH), and Baxter International. They make up 2.07%, 2%, 1.9%, and 1.86% of the fund, respectively.

Browse this series on Market Realist:

• Part 1 - Baxter Exhibits Strong 1Q16 Performance, Beat Estimates

• Part 2 - Innovation Drove Baxter’s Hospital Products Sales in 1Q16

• Part 3 - AMIA APD Momentum Drives Baxter’s Renal Business Growth in 1Q16