Analyst Note| Julie Utterback |
As previously signaled, Baxter unveiled divestiture plans, including spinning off its kidney care businesses (renal care and acute care segments that represent roughly 30% of Baxter sales) within the next 12-18 months and exploring strategic alternatives for its BioPharma Solutions business (about 5% of sales) that provides contract manufacturing services and has limited synergies with its other operations. Given that the value of the kidney spinoff will represent nearly all the value of these planned divestitures and flow directly to shareholders tax free, we expect to maintain our $85 fair value estimate for the combined entity at first glance. Despite the Jan. 6 share movement, we think these actions to increase strategic focus through divestitures and then improve underlying execution suggest a desire to unlock shareholder value and reinforce our Exemplary capital allocation rating. Also, considering recent share prices well below the full entity's intrinsic value, we think long-term investors should consider share weakness as an opportunity to invest in this narrow-moat medical supplier at a cheap price.