Baxter International (NYSE:BAX) Expands Operating Margins at Remarkable Pace

June 16, 2017

Managing Director Vijay Kumar of Evercore ISI says Baxter International (NYSE:BAX) is a special turnaround story in the medical devices space with the company expanding operating margins at a surprising pace.

In Baxter, if you look at what this company has done in terms of expanding its operating margins, it has been nothing short of remarkable. We have seen turnaround stories in the space, but truly what is happening here with Baxter is special. This is more so. I don’t think anyone doubted that there was room for expanding margins, but it is more the pace at which we have seen this expansion. It has taken the Street by surprise.

So when you think about this company, it has grown earnings north of 20% for the last 18 months. We think they will continue to grow earnings into the high teens for the next, call it, three-plus years.

Given that sort of earnings visibility and a clean balance sheet, extremely low leverage levels and potential upside optionality from capital deployment if they were to lever up their balance sheet, their CEO, Joe Almeida, who sold Covidien to Medtronic a few years ago and has been known in the industry for portfolio optimization, we do think there are a number of levers that the company has to drive superior earnings growth over the next three years. That visibility is what investors like in terms of consistent execution. That probably is the primary reason why we favor Baxter in an environment like this.