Baxter International: Is Ebola is Good for Business?

The World Health Organization (WHO) officially declared Nigeria Ebola-free today has the West African country has gone through two 21-day incubation periods of the Ebola Virus Disease without reporting any new cases of the disease. It might interest you to know that WHO declared that Senegal was also free of Ebola last Friday.

However, the United States is still far from reporting the last known case of Ebola or reporting 21-days without a new Ebola incident. In the U.S the two nurses that were infected during their care for Mr. Duncan, their close contacts are among the 120 people that are under observation for EVD.

Honestly, Ebola is no reason to be happy; yet, we cannot ignore the fact that the Ebola outbreak provides a good enough reason for some healthcare stocks to soar.

Enter Baxter International Inc. (NYSE:BAX). Baxter with its market capitalization of $36.61B is a global, diversified healthcare company. Baxter, through its subsidiaries, develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions.

Healthy Financials

Shares of Baxter International gained 1.40% to close at $67.74 as the stock continues its recent bullish form since reporting its third quarter (Q3 2014) earnings last Thursday. One of the major reasons behind Baxter’s recent bullish form is the impressive third quarter results as the highlights below show.

  • The company reported that earnings rose by 9% to $1.35 a share, beating estimates by $0.04.
  • Its sales rose to $4.2 billion, to mark a 13% increase over the same quarter in 2013 and falling in line with analysts’ consensus.
  • The company lowered organic sales growth guidance to between 11-12 percent.
  • The EPS range was also reduced by $0.24 to between $4.86 and $4.89, reflecting the sale of Baxter’s vaccines business to Pfizer

Technicals Support the Bullish Action

BAX calls

The chart above (with my annotations) shows how shares of the Baxter International have traded within the last one year. You will observe that the stock has two main support levels within the last 52 weeks. The first support level of $65 held ground in the first quarter and the $71 support held ground in the second quarter.

However, the $71 support failed to hold earlier this month, in line with the market selloff and the stock appears to be headed for the Q1 support at $65. Thankfully, strong third quarter earnings have brought a change in direction and we can now expect the stock to head back to the previous $71 support. In addition, you will observe that the stock has an RSI of 32.37, which suggests that selling action is exhausted as the stock leaves “oversold” territory.

How to Trade BAX Options

The quality of the third quarter financials and the resultant market reaction has shown that Baxter is more likely to get back up to $71 than dropping to $65. More so, there exists a fat chance that the company will record an increase in demand as the healthcare industry works hard to curtail Ebola; hence, we can expect Baxter to generate more goodwill from its investors.

I strongly believe that Baxter has already seen the worst; hence, I am pitching my tent on the bullish side of the fence. I recommend buying the BAX Feb 2015 70.000 call (BAX150220C00070000) at an asking price of $1.60.


— Daily Option Alerts

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