By David Stires

(FORTUNE Magazine) – What we said

In "Keep an Eye on Baxter" (May 26, 2003), we argued that Baxter International (BAX, $39)--whose shares were off more than 60% in 12 months--was being unfairly punished. With its stock selling for just 12 times projected 2003 earnings and a promising new-product pipeline, we said the medical-equipment giant wouldn't stay in the sick ward for long.

What happened

The stock has soared 70% since our story ran. New CEO Bob Parkinson launched an aggressive restructuring plan after joining Baxter in April 2004. He has slashed thousands of jobs and closed dozens of unprofitable plasma facilities. Meanwhile sales of Advate, a next-generation blood-clotting drug for hemophiliacs, have exceeded even company expectations. Baxter forecasts that revenues for Advate will total about $600 million this year, up from $250 million in 2004. Now Parkinson has to generate growth. Earnings should get a boost next year from a new intravenous pump, and the company is spending heavily to develop treatments for chronic disorders such as emphysema. But it could take years for this spending to pay off. Many of Baxter's current products compete in mature markets with only mid-single-digit growth rates. And at 21 times earnings, the stock is at a premium to the market. As robust as Baxter has been lately, investors should look elsewhere. -- David Stires