Global Healthcare Spending And Aging Will Squeeze Hospital Revenues

Key Takeaways

• Transition to preventive and at-home care, combined with regulatory and competitive pressures, is shrinking demand and margins for Baxter's core hospital-based businesses.
  
• Portfolio restructuring and operational disruptions risk eroding scale, profit streams, and cross-segment benefits, compounding growth and profitability challenges.
  
• Accelerated innovation, leadership changes, and supply chain optimization position Baxter for sustained revenue growth, margin improvement, and improved earnings despite recent operational headwinds.

Catalysts

Through its subsidiaries, provides a portfolio of healthcare products in the United States.

• Persistent global healthcare spending pressures, driven by rising government debt and demographic shifts in aging, are forcing payers and providers to tightly manage costs-this is likely to accelerate pricing pressures and reimbursement cuts on Baxter's core hospital-based products, resulting in lower revenue growth and ongoing compression of net margins.
  
• Accelerating adoption of preventive care and at-home digital health solutions is reducing demand for traditional hospital-based therapies, which underpin a major share of Baxter's product portfolio; this sustained shift will erode the addressable market for Baxter's IV solutions, infusion pumps and hospital-focused therapies, undermining both top-line revenue and earnings growth.
  
• Baxter's ongoing portfolio restructuring and divestitures, such as the spinoff of Kidney Care and BioPharma Solutions, may result in diminished scale, weakened cross-segment synergies, and loss of high-margin revenue streams; this fragmentation will likely weaken long-term revenue growth and stall efforts to expand operating margins.
  
• The company continues to face operational headwinds, including supply chain execution challenges and product recalls, as evidenced by the ongoing pause in Novum IQ LVP shipments for quality corrections; these disruptions risk higher costs, product losses, lower manufacturing volumes, and persistent drag on profitability.
  
• Intensifying price competition from low-cost manufacturers in emerging markets, coupled with tightening global regulatory scrutiny, threatens to erode Baxter's market share and raises the time and cost required to commercialize innovative therapies, together putting sustained pressure on both revenue growth and net earnings over the longer-term.

Baxter International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Baxter International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Baxter International's revenue will grow by 2.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -2.3% today to 5.5% in 3 years time.
• The bearish analysts expect earnings to reach $648.9 million (and earnings per share of $1.25) by about August 2028, up from $-247.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, up from -49.3x today. This future PE is lower than the current PE for the US Medical Equipment industry at 28.0x.
• Analysts expect the number of shares outstanding to grow by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.28%, as per the Simply Wall St company report.

Baxter International Future Earnings Per Share Growth

Risks

• Baxter's ongoing innovation momentum, exemplified by new product launches and an accelerated cadence of product introductions expected in 2026 and beyond, could materially improve revenue growth and gross margins as temporary headwinds subside.
  
• Recovery in demand for IV solutions and normalization in hospital fluid conservation practices, as indicated by improving hospital confidence, strategic partnerships with supply networks like Vizient, and binding minimum volume contracts, may drive a sustained rebound in top-line sales.
  
• Leadership transition to an experienced operator with a proven track record in quality, innovation, and shareholder value creation could result in improved operational effectiveness, cost structure optimization, and higher net margins over the long term.
  
• After temporary disruptions, pharmacy segment growth is expected to accelerate through new injectables launches, recovery from cyclical softness, and robust growth in compounding services, supporting stronger earnings performance.
  
• The company's disciplined approach to managing stranded costs, supply chain optimization, and operational execution following the Vantive spinoff creates a path toward operating margin expansion and higher earnings per share over the next several years.

Valuation

• The assumed bearish price target for Baxter International is $19.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Baxter International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $47.0, and the most bearish reporting a price target of just $19.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $11.8 billion, earnings will come to $648.9 million, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $23.69, the bearish analyst price target of $19.0 is 24.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.