The medical conglomerate Baxter International ( BAX) looked like a swooning biotech when its stock lost two-thirds of its value between March 2002 and March 2003.

Since then, Baxter has acted like booming biotech. Its stock has more than tripled in the past five years, easily outperforming the S&P 500 and the Amex Index of large drug stocks.

Also during this period, Baxter has driven its mixture of medications and devices well past the stock showings of health care hybrids like Johnson & Johnson ( JNJ) and Abbott ( ABT).

And at a time when defensive health care stocks aren't feeling well, Baxter gained about 10% for the 12 months ended June 11, comfortably ahead of Abbott and slightly ahead of J&J. The S&P 500 was down more than 10%, while the Amex drug index fell more than 23%.

"Baxter offers the high predictive value that investors in this increasingly volatile market environment desire," says a recent report by Ben Andrew of William Blair & Co., as he raised his rating to outperform from market perform. Baxter benefits from a "diversified, defensible product portfolio," says Andrew, who doesn't own shares.

First-quarter sales rose 8% and earnings per share gained 10% vs. the same period last year, heralding the 14th consecutive quarter in which Baxter beat Wall Street estimates, says a recent Bear Stearns report. Baxter raised its full-year earnings-per-share forecast, excluding special items, to a range of $3.18 to $3.24 from a previous estimate of $3.10 to $3.18.

"Baxter's products aren't that sexy compared to J&J," says Julie Stralow, of the independent financial research firm Morningstar. "But because Baxter is diversified, if there's a problem with one product , something else comes along to save the day."

Baxter is divided into three areas -- biosciences, medical delivery and kidney-disease care. The biosciences group, which accounted for 42% of the first-quarter's $2.9 billion in sales. includes the world's leading treatment for hemophilia as well as therapies for immune disorders and vaccines. Biosciences grew 13% in the first quarter to $1.2 billion.

Kidney dialysis produced sales of $558 million, up 6% from the year-ago quarter. It accounts for 19% of corporate revenue. Medication delivery sales -- syringes, pumps, intravenous products and anesthesia -- rose 8% to $1.1 billion.

Baxter isn't free from stress. Right now, it is dealing with chronic difficulties with an infusion pump that delivers medications and contaminated supplies of the anticoagulant heparin.

Baxter recalled some vials of injectable heparin in January and initiated a broader recall in February. The heparin was linked to "an unusual increase" in allergic reactions. Baxter receives the drug from its U.S. supplier, Scientific Protein Laboratories. This firm relies on China to provide the raw material, which is derived from pig intestines.

Previously, Baxter had been supplying 50% of U.S. heparin, but the company said May 21 that it "will not sell another vial of heparin until the company has helped to create a system in which the quality and safety of heparin is secured."

Credit Suisse analyst Kristen Stewart tells clients that the Colleague infusion pump has been plagued with problems for several years -- two recalls in 2005 and an FDA seizure of pumps in 2005. Baxter signed a consent decree in 2006 but had another recall last year, Stewart adds. It continues to talk to the FDA, and it continues to try fixing software problems with the pump.

"Baxter no longer expects the re-commercialization of Colleague in the second half of 2008," she told clients in mid-April research report. "While the delay is disappointing ... we are not that surprised given the history of delays."

Some pumps have been upgraded and remain on the market, says Stewart, adding that the product has lost only 3% to 4% of its market share in the past two years. Stewart, who doesn't own shares, is neutral on the stock. Her firm has had a recent investment banking relationship.

"They need to fix this pump problem now," says Morningstar's Stralow. Although the pump and heparin don't have a large revenue impacts relative to Baxter's total size, they are "hurting their image," she adds. "It's causing a problem with trust."

So far, however, heparin and the pump aren't causing Baxter much grief among sell-side analysts. Eight have buy ratings and two are neutral, says Thomson Reuters.

Despite its size -- revenue of $11.3 billion last year and a market capitalization of $38.4 billion -- Baxter seems to hide in plain sight when it comes to analysts' attention.

Baxter gets less Wall Street coverage than most big names in health care. Baxter's market cap is dwarfed by Abbott's and J&J's, and it is smaller than all Big Pharma companies -- foreign and domestic -- except Schering-Plough ( SGP).

Baxter also gets less sell-side analyst attention than assorted biotech companies who have few or no products, little or virtually no revenue and modest or miniscule market caps. Examples, according to Thomson Reuters data, include Neurocrine BioSciences ( NBIX), Vertex Pharmaceuticals ( VRTX), Medarex ( MEDX) and ZymoGenetics ( ZGEN).

By most accounts, analysts ignoring Baxter are missing an interesting story.

The credit for Baxter's revival goes to Robert Parkinson Jr., a former Abbott executive who had been dean of the Loyola University of Chicago's School of Business Administration before joining Baxter in April 2004. He replaced Harry Kraemer Jr., who became CEO in 1999 and added the role of chairman in 2000.

"Parkinson has done a nice job of making this a more efficient business," Stralow says.

During Kraemer's tenure, Baxter emphasized aggressive growth, which was fine with Wall Street until it couldn't make good on hefty financial projections, says James B. Shein, a professor of management and strategy at Northwestern University's Kellogg School of Management.

"Considering this industry, it wasn't realistic," says Shein, Baxter "delivered pretty good results during most of Kraemer's tenure," Shein says, adding that Kraemer "took some unfair hits for things that happened."

Baxter revised financial forecasts in late 2002 and 2003, caused primarily by greater competition. By mid-2003, Baxter was closing some plasma-collection centers, firing 5% of its work force and further cutting its estimates. By late 2003, Baxter issued another reduced earnings forecast. In January 2004, Kraemer said he would resign.

When Parkinson assumed control, "he pushed for more focused results," Shein says. "He held people more accountable for results. He said Baxter had to make sure everything works well before we emphasize growth."

Parkinson put more home-office control over foreign subsidiaries "which were almost totally independent," and he instituted procedures to secure more timely payments from customers, Shein adds. "He focused more on cash and less on growth for the sake of growth."

Future growth should come, in part, from what William Blair & Co. cites as significant increases in R&D spending over the last two years. Biosciences holds the most promise, says Stralow. "They focus on what they do best," she adds. "Growth will be an internal story rather than through acquisitions."

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