BUSINESS
Baxter International Inc., through its subsidiaries, develops and provides a portfolio of healthcare products worldwide. The company offers peritoneal dialysis and hemodialysis, and additional dialysis therapies and services; intravenous therapies, infusion pumps, administration sets, and drug reconstitution devices; remixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services; parenteral nutrition therapies and related products; biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention; and continuous renal replacement therapies and other organ support therapies focused in the intensive care unit.
INVESTMENT RATING
BAX’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
Baxter International has a current Value Trend Rating of D (Negative).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Baxter International has a neutral Appreciation Score of 44 and a slightly negative Power Rating of 35, triggering the Negative Value Trend Rating.
Baxter International’s stock is selling below targeted value. The current stock price of $42.83 compares to targeted value 12 months forward of $50.
This neutral appreciation potential results in an appreciation score of 44 (56% of the universe has greater appreciation potential.)
Baxter International has a Power Rating of 35. (This slightly negative Power Rating indicates that BAX’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly negative Power Rating include: the Biological Products, Excluding Diagnstics comparison group is currently in an unfavorable position; earnings estimate behavior for BAX has been slightly negative recently; and recent price action has been neutral.
INVESTMENT PROFILE
BAX’s financial strength is below average. Financial strength rating is 35.
Relative to the S&P 500 Composite, Baxter International Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Income-oriented investors; the perception is that BAX is higher risk. Relative weaknesses include: low financial strength, high financial leverage, low expected growth, low historical growth, and high earnings variability. BAX’s valuation is moderate: moderate dividend yield, moderate P/E ratio, and moderate price/book ratio. BAX has low market capitalization.
CURRENT SIGNALS
Baxter International’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Baxter International’s current technical position is mixed. The stock price is in a 4.9 month up move. The stock has appreciated 37.5% from its prior low. The 200 day moving average is in a downtrend. The stock price is above its 200 day moving average. The stock has just risen above its 200 day moving average.
ALERTS
Recent notable positive changes in investment behavior have benefitted Baxter International Inc (NYSE: BAX): the stock’s recent price rise disrupted its longer term downtrend.
Baxter International Inc (NYSE: BAX) has benefited from slight positive changes in fundamentals: significant quarterly earnings acceleration occurred.
The stock is currently rated D.
Baxter International Inc (NYSE: BAX) stock closed at $42.83 on 4/9/24 after an increase of 1.4%. However, trading volume in this advance was below average at 73% of normal. The stock has performed in line with the market over the last nine months and has declined -1.7% during the last week.
CASH FLOW
In 2023, Baxter International generated a very significant increase in cash of +$1,476 million (+86%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$2,976 million. Non-operating uses consumed -$1,296 million (-44% of EBITDA). Cash taxes consumed -$217 million (-7% of EBITDA). Withdrawal of investment from the business totaled +$744 million (+25% of EBITDA). On a net basis, debt investors pulled out -$3,376 million (-113% of EBITDA) while equity investors provided +$2,645 million (+89% of EBITDA).
BAX’s Non-operating Income, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by stability for the Baxter International Peer Group. In most years, Baxter International was in the third quartile and lower quartile. Currently, Baxter International is lower quartile at -44% of EBITDA (-$1,296 million).
BAX’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Baxter International Peer Group. In most years, Baxter International was in the top quartile. Currently, Baxter International is upper quartile at -7% of EBITDA (-$217 million).
BAX’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Baxter International Peer Group. In most years, Baxter International was in the top quartile and third quartile. Currently, Baxter International is upper quartile at +25% of EBITDA (+$744 million).
BAX’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Baxter International Peer Group. (Since 2021 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, Baxter International was in the top quartile and lower quartile. Currently, Baxter International is lower quartile at -113% of EBITDA (-$3,376 million).
BAX’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Baxter International Peer Group. (Since 2021 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Baxter International was in the top quartile and lower quartile. Currently, Baxter International is upper quartile at +89% of EBITDA (+$2,645 million).
BAX’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Baxter International Peer Group. In most years, Baxter International was in the top quartile and lower quartile. Currently, Baxter International is upper quartile at +50% of EBITDA (+$1,476 million).
BAX’s Cash, %Revenue has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Baxter International Peer Group. In most years, Baxter International was in the top quartile. Currently, Baxter International is upper quartile at +22%.
PROFITABILITY
BAX’s return on equity has eroded very significantly since 2014. The current level is -0.9% versus the high of 24.0% and the low of -41.7%.
This very significant erosion was due to very strong negative trend in pretax operating return and very strong negative trend in non-operating factors.
The productivity of BAX’s assets declined over the full period 2014-2023: asset turnover has experienced a downtrend.
BAX’s pretax margin experienced a very strong overall downtrend over the period 2014-2023.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
BAX’s return on equity is lower quartile (-0.9%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is lower quartile (-0.4%) reflecting asset turnover that is lower quartile (0.52X) and lower quartile pretax margin (-0.7%).
Tax “keep” rate (income tax management) is at the lower quartile (73.8%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is above median (3.37X).
GROWTH RATES
There are no significant differences between Baxter International’s longer term growth and growth in recent years.
Baxter International’s historical income statement and balance sheet growth are not available.
Annual revenue growth has been 3.4% per year.
Total asset growth has been 5.7% per year.
Annual E.P.S. growth has been 1.0% per year.
Equity growth has been 0.1% per year.
Baxter International’s consensus growth rate forecast (average of Wall Street analysts) is 2.7% — in line with the average of the historical growth measures.
Relative to the Baxter International Peer Group, Baxter International’s historical growth measures are generally third quartile. Revenue growth (3.4%) has been below median. Total asset growth (5.7%) has been below median. E.P.S. growth (1.0%) has been at the lower quartile. Equity growth (0.1%) has been lower quartile.
Consistent with this pattern, consensus growth forecast (2.7%) is also lower quartile.
PRICE HISTORY
Over the full time period, Baxter International’s stock price performance has been significantly below market. Between June, 2013 and April, 2024, Baxter International’s stock price fell -38%; relative to the market, this was a -81% loss. Significant price moves during the period: 1) May, 2020 – October, 2023: -64%; 2) September, 2015 – September, 2018: +135%; and 3) August, 2014 – September, 2015: -56%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 5.4% is below median relative to the S&P 500 Composite.
In addition to being below median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 5.4% is below median relative to Baxter International Inc Peer Group.
Current 5-year total return performance of -9.8% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -9.8% relative to S&P 500 Composite, Baxter International’s total return performance is lower quartile relative to Baxter International Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, BAX’s overall valuation is low. Ratio of enterprise value/earnings before interest and taxes is at median. Price/equity ratio is below median. Ratio of enterprise value/assets is below median. Ratio of enterprise value/revenue is near the lower quartile. Price/earnings ratio is unavailable.
Relative to Baxter International Peer Group, BAX’s overall valuation is low. Ratio of enterprise value/revenue is slightly above median. Price/equity ratio is below median. Ratio of enterprise value/earnings before interest and taxes is slightly below median. Ratio of enterprise value/assets is at the lower quartile. Price/earnings ratio is unavailable.
Baxter International has a very large value gap compared to the median. For BAX to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 2.44X to 2.09X. If BAX’s ratio of enterprise value/revenue were to fall to 2.09X, its stock price would be lower by $-10 to $33.
For BAX to achieve upper quartile valuation relative to the Baxter International Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.44X to 4.78X. If BAX’s ratio of enterprise value/revenue were to rise to 4.78X, its stock price would increase by $68 from the current level of $43.
VALUE TARGETS
BAX’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
Baxter International’s current Price Target of $51 represents a +20% change from the current price of $42.83.
This neutral appreciation potential results in an appreciation score of 44 (56% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 44, the moderately low Power Rating of 35 contributes to an Value Trend Rating of D.
Baxter International’s current Price Target is $51 (-14% from the 2023 Target of $59 but +20% from the 04/09/24 price of $42.83). This slight fall in the Target is the result of a +3% increase in the equity base and a -16% decrease in the price/equity multiple. The forecasted decline in growth has a very large negative impact on the price/equity multiple and the forecasted increase in cost of equity has a slight negative impact as well. Partially offsetting these Drivers, the forecasted increase in return on equity has a large positive impact.
PTR’s return on equity forecast is 18.7% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is well above the 2016 low of 11%.
PTR’s growth forecast is 5.0% — slightly above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2020 low of 0%.
PTR’s cost of equity forecast is 9.6% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2016 low of 5.5%.
At Baxter International’s current price of $42.83, investors are placing a positive value of $11 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 10.0% per year, and a return on equity of 17.3% versus a cost of equity of 9.3%.
PTR’s 2025 Price Target of $51 is based on these forecasts and reflects an estimated value of existing assets of $38 and a value of future investments of $14.
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