What Goldman Sachs Group Inc (GS) Thinks of Baxter International Inc. (BAX) Spinning Off Its Biopharma Business?

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In the midst of Baxter International Inc. (NYSE:BAX)’s scheduled plan to spin off its Biopharma business, Goldman Sachs Group Inc (NYSE:GS) analyst, David Roman, announced his comments about it. The company is planning to create two separate businesses, one is Baxter with a focus on medical products. The other is Baxalta, focusing on Biopharma. The company announced its intention to split its business nearly one year ago.

EBITDA Margin

Baxter International Inc. (NYSE:BAX) is slated to hold two investor meetings in May and the stock has been underperforming compared to the broader S&P 500 index. Therefore, Goldman Sachs analysts, took a detailed analysis of its division and assessed its potential for both upside, as well as downside.

The key takeaways from Goldman Sachs’ analysis was that SOTP profit and loss build suggested that both the units could return to the growth path of EBITDA in the next year. Similarly, analyst David Roman said that the medical products division would likely carry a lower EBITDA margin, by 8.5 percentage points, compared to its rivals.

Baxter International Inc. (NYSE:BAX)’s medical product segment is set to face the rolling off of headwinds from its generic, as well as benefits from its restructuring and portfolio pruning efforts. Therefore, the brokerage estimates one percentage point of margin expansion in 2017.

Risk/Reward

Analyst David Roman said that his SOTP analysis indicated that the stock could likely see an 8% downside in case of bearish trends, i.e. $62 a share. On the optimistic side, he expects the stock to grow 24% in case of a bullish sentiment, i.e. $84 a share, in the next one-year period.

On the whole, Goldman Sachs Group Inc (NYSE:GS) maintained its rating of ‘Neutral’ on the shares of Baxter International Inc. (NYSE:BAX). However, the brokerage said that it was incrementally positive on the company’s stock, due to attractive relative valuation with the potential favorable drivers of pipeline and margin expansion. Analysts also look for clarity on pipeline updates, margins and visibility into priorities of capital deployment. The brokerage has a price objective of $70 on Baxter shares.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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