Leerink Partners upgrade sends Baxter shares up

Baxter (NYSE:BAX) shares gained today after analysts at Leerink Partners upgraded their view of the stock, citing its strong free cash flow and a string of “beat-‘n’raise” quarters from the Chicago-area healthcare giant.

Leerink analysts Danielle Antalffy and Rebecca Wang boosted their rating on BAX shares from “market perform” to “outperform” and boosted the price target to $64 from $54.

“With now 6 consecutive ‘beat-and-raise’ EPS quarters since the spin, operating margin already tracking ahead of management’s current long-range plan, and increasingly strong free cash flow generation, we believe post-spin ‘new’ BAX’s turnaround story still has room for significant upside,” the analysts wrote this morning in a note to investors. “While we do believe the incremental margin upside potential is already priced in, we believe the magnitude of sales growth re-acceleration and potential free cash flow generation is still under-appreciated at these levels.

“BAX is increasingly becoming a strong free cash flow generation story, with free cash flow (FCF) targets of $1B in 2018 and $1.75B in 2020 vs. over $900M in 2016 (up from expectations of over $500M in 2016 as of last May’s analyst day). With potential upside to free cash flow, in our view, BAX will increase its financial flexibility to both invest in the business to drive even faster sales growth acceleration and invest inorganically in outside opportunities to further supplement top- and bottom-line growth,” they wrote.

Before the market opened, investors sent BAX shares up 1.6% to $53.11; the stock was trading at $52.37 apiece today in mid-afternoon activity.

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