In the approximately nine months since José (Joe) Almeida assumed the top job at Baxter International (BAX), shareholders have watched their investment climb nearly 30%.
The 53-year-old Brazilian native came to Baxter from Coviden, now part of Medtronic (MDT), where he served as chairman, president and CEO.
But let’s not go overboard in our praise – at least not yet. Maybe the jump in share price was just a coincidence. Or perhaps investors thought fresh blood at the helm was just the jolt the maker of rental and hospital products needed. Almeida clearly hasn’t been calling the shots at suburban Chicago-based Baxter long enough to take credit for a respectable first quarter, when the company beat analysts’ estimates on both sales and earnings.
That good news heartened investors as they drove up the shares from near $44 to $46.39. They then dipped before climbing back to that level pre-Brexit. Baxter now trades over $45, just a buck and change below its 52-week high.
Almeida might have stoked investor optimism when he raised both sales and earnings guidance for the year. Looking beyond that, he is banking on Baxter’s strategy to achieve “sustainable growth and value creation for all our stakeholders.”
A key to that strategy is building on Baxter’s leading position in renal – or kidney – care products. The company produces systems for both hemodialysis (HD), which is performed in outpatient clinics, and peritoneal dialysis (PD), which is done at home.
The global market for this type of equipment is already large and growing fast. According to Stratistics Market Research, it was valued at $14.5 billion in 2015 and is projected to reach $22.8 billion by 2022, a compound annual growth rate of 6.7%.
Driving the market are a variety of factors including the steadily increasing number of end-stage renal disease (ESRD) patients, an aging population, favorable government reimbursement and expansion into emerging markets
It’s no surprise that a number of others are vying for their slice of the pie. Fresenius Medical Care (FMS) is Baxter’s biggest competitor on the equipment side, but the German company also has dialysis centers in about 45 countries, making it the world’s largest integrated provider.
Fresenius sales are up about 10% in the past three years, but EPS growth has been a tepid 1.6% during the same period. The company’s lack of earnings power has tamped down enthusiasm for its shares. If stock appreciation were a horse race, Fresenius would still be in the backstretch while the Standard & Poor’s 500 was crossing the finish line; the S&P is up nearly 55% in the past five years while Fresenius fathiful have seen only a 16% appreciation in their shares.
The other big service provider is DaVita HealthCare Partners (DVA). The Denver-based firm offers dialysis and administrative services through a network of outpatient centers in the U.S. and in 10 other countries.
DaVita has been a bonanza for shareholders who have owned the stock since 2011, as the company has outperformed the S&P by nearly 20 percentage points during that period. However, in the past year, it has returned to the pack, shedding upwards of 3% of its market value. Currently trading at more than $77, shares have gained about $15 since February, although some on Wall Street think the stock has topped out for the near future.
Investors also might want to take a look at some of the other companies in the renal care space. Among them are Cantel Medical Corp. (CMN), Akebia Therapeutics (AKBA), NxStage Medical (NXTM), Asahi Kasei Corp. (AHKSY) and a newcomer to the group, American Renal Associates (ARA), which went public earlier this year.
Disclosure: The author doesn't own any of the stocks mentioned in this article.
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