Baxter International (NYSE:BAX) - Share price, News & Analysis

Q: What is the Fair Price of BAX when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

BAX ($60.46) is trading below our estimate of [[fair value]] ($106.63)

BAX fundamental analysis
Snowflake Score
Valuation	5/6
Future Growth	3/6
Past Performance	1/6
Financial Health	2/6
Dividends	3/6

BAX Stock Overview

Baxter International Inc., through its subsidiaries, develops and provides a portfolio of healthcare products worldwide.

Rewards

Trading at 43.3% below our estimate of its fair value

Earnings are forecast to grow 19.07% per year

Risk Analysis

Debt is not well covered by operating cash flow

Unstable dividend track record

Large one-off items impacting financial results

Baxter International Competitors

ResMed

NYSE:RMD

US$35.1b

IDEXX Laboratories

NasdaqGS:IDXX

US$33.0b

Zimmer Biomet Holdings

NYSE:ZBH

US$24.6b

STERIS

NYSE:STE

US$21.4b

Price History & Performance

Summary of all time highs, changes and price drops for Baxter International
Historical stock prices
Current Share Price	US$60.46
52 Week High	US$89.70
52 Week Low	US$57.49
Beta	0.60
1 Month Change	-5.21%
3 Month Change	-17.21%
1 Year Change	-18.91%
3 Year Change	-30.48%
5 Year Change	-0.67%
Change since IPO	374.20%

Recent News & Updates

Aug 11

Baxter's Shares Are Starting To Look Cheap

Baxter boasts a broad portfolio of medically necessary products and therapies, and its brand strength is a key advantage. The company's products can be found in just about any healthcare facility from hospitals to nursing homes and beyond in over 100 countries. Due to Baxter acquiring Hillrom in December 2021, management is prioritizing deleveraging efforts as Baxter’s net debt load swelled higher to fund the deal. We think shares of Baxter are starting to look attractive at ~$60 each, as our fair value estimate derived from our discounted cash flow process stands north of $80 per share. Shares yield ~1.9% at the time of this writing, though we note the firm's dividend isn't as strong as others. By The Valuentum Team Baxter International (BAX) boasts a broad portfolio of medically necessary products and therapies, and its brand strength is a key advantage as the majority of its sales come from products with leading market positions. Some of its products include dialysis therapies, intravenous solutions, infusion systems and devices, parenteral nutrition therapies, advanced surgical equipment, smart beds, and respiratory health devices, among others. The company's products can be found in just about any healthcare facility from hospitals to nursing homes and beyond in over 100 countries. In December 2021, Baxter acquired Hillrom through a deal worth ~$12.5 billion by enterprise value. Within three years of the deal closing, Baxter aims to generate ~$250 million in annualized pre-tax cost synergies due to the highly complementary nature of Hillrom’s portfolio. Going forward, Baxter is prioritizing deleveraging activities and the enlarged firm is expected to be a stellar free cash flow generator. We think shares of Baxter are starting to look attractive at ~$60 each, as our fair value estimate derived from our discounted cash flow process stands north of $80 per share. Shares yield ~1.9% at the time of this writing, though we note the firm's dividend isn't as strong as others on the basis of our Dividend Cushion analysis. Dividend Cushion Ratio Evaluation (Image Source: Valuentum) The Dividend Cushion Ratio Deconstruction, shown in the image above, reveals the numerator and denominator of the Dividend Cushion ratio. At the core, the larger the numerator, or the healthier a company's balance sheet and future free cash flow generation, relative to the denominator, or a company's cash dividend obligations, the more durable the dividend. In the context of the Dividend Cushion ratio, Baxter's numerator is smaller than its denominator suggesting weak dividend coverage in the future. The Dividend Cushion Ratio Deconstruction image puts sources of free cash in the context of financial obligations next to expected cash dividend payments over the next 5 years on a side-by-side comparison. Because the Dividend Cushion ratio and many of its components are forward-looking, our dividend evaluation may change upon subsequent updates as future forecasts are altered to reflect new information. Baxter's Key Investment Considerations Image Source: Valuentum Baxter has a broad portfolio of essential renal and hospital products. Its global footprint helps it play a key role in expanding access to healthcare in emerging and developed countries alike. The majority of the firm's revenue is generated from products in market-leading positions. The company split via a tax-free distribution to shareholders in 2015. Baxter's strong image and brand is augmented by an extensive global footprint and channel strength. The company continues to focus on growing international sales, which should be helped by its strong pipeline of new product launches. In December 2021, Baxter acquired Hillrom through a deal worth ~$12.5 billion by enterprise value. Hillrom had a highly complementary portfolio in the medical technology space and within three years of the deal closing, Baxter aims to generate ~$250 million in annualized pre-tax cost synergies. Deleveraging activities are being prioritized in the medium-term. Baxter’s net debt load swelled in the wake of its deal for Hillrom and its pro forma adjusted EBITDA to net debt ratio stood at ~4.2x immediately after the acquisition closed. Within two years of the deal closing, management aims to bring Baxter’s leverage ratio down to ~2.75x. Baxter's dividend was reduced as a result of it splitting into two independent companies in 2015, but management has stepped up with some large payout hikes since then. Competing capital allocation options have the potential to impact the pace of dividend expansion moving forward. Due to Baxter acquiring Hillrom in December 2021, management is prioritizing deleveraging efforts as Baxter’s net debt load swelled higher to fund the deal. Within two years of the deal closing, Baxter aims to reduce its net debt to adjusted EBITDA ratio down to ~2.75x, down sharply from ~4.2x on a pro forma basis immediately after the deal closed. Baxter's Economic Profit Analysis The best measure of a company's ability to create value for shareholders is expressed by comparing its return on invested capital with its weighted average cost of capital. The gap or difference between ROIC and WACC is called the firm's economic profit spread. Baxter Intl's 3-year historical return on invested capital (without goodwill) is 17.9%, which is above the estimate of its cost of capital of 8.7%. As such, we assign the firm a ValueCreation rating of EXCELLENT. In the chart below, we show the probable path of ROIC in the years ahead based on the estimated volatility of key drivers behind the measure. The solid grey line reflects the most likely outcome, in our opinion, and represents the scenario that results in our fair value estimate. Baxter is a strong economic-value generator. Image Source: Valuentum Baxter's Cash Flow Valuation Analysis Image Source: Valuentum We think Baxter is worth $81 per share with a fair value range of $63.00 - $99.00. The margin of safety around our fair value estimate is driven by the firm's MEDIUM ValueRisk rating, which is derived from an evaluation of the historical volatility of key valuation drivers and a future assessment of them. Our near-term operating forecasts, including revenue and earnings, do not differ much from consensus estimates or management guidance. Our model reflects a compound annual revenue growth rate of 8.4% during the next five years, a pace that is higher than the firm's 3- year historical compound annual growth rate of 4.8%. Our valuation model reflects a 5-year projected average operating margin of 18.9%, which is above Baxter Intl's trailing 3- year average. Beyond year 5, we assume free cash flow will grow at an annual rate of 4% for the next 15 years and 3% in perpetuity. For Baxter Intl, we use a 8.7% weighted average cost of capital to discount future free cash flows. Baxter's Margin of Safety Analysis Image Source: Valuentum Our discounted cash flow process values each firm on the basis of the present value of all future free cash flows. Although we estimate the firm's fair value at about $81 per share, every company has a range of probable fair values that's created by the uncertainty of key valuation drivers (like future revenue or earnings, for example). After all, if the future were known with certainty, we wouldn't see much volatility in the markets as stocks would trade precisely at their known fair values. This is an important way to view the markets as an iterative function of future expectations. As future expectations change, so should the company's value and its stock price. Stock prices are not a function of fixed historical data but rather act in such a way to capture future expectations within the enterprise valuation construct. This is a key part of our book Value Trap: Theory of Universal Valuation.

Aug 02

Are Investors Undervaluing Baxter International Inc. (NYSE:BAX) By 45%?

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Baxter International...

Shareholder Returns

	BAX	US Medical Equipment	US Market
7D	3.2%	1.0%	1.3%
1Y	-18.9%	-20.3%	-11.7%

Return vs Industry: BAX exceeded the US Medical Equipment industry which returned -20.3% over the past year.

Return vs Market: BAX underperformed the US Market which returned -11.7% over the past year.

Price Volatility

Is BAX's price volatile compared to industry and market?
BAX volatility
BAX Average Weekly Movement	4.6%
Medical Equipment Industry Average Movement	9.6%
Market Average Movement	7.8%
10% most volatile stocks in US Market	16.9%
10% least volatile stocks in US Market	3.2%

Stable Share Price: BAX is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 5% a week.

Volatility Over Time: BAX's weekly volatility (5%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
1931	60,000	Joe Almeida	https://www.baxter.com

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. It also provides connected care solutions, including devices, software, communications, and integration technologies; integrated patient monitoring and diagnostic technologies to help diagnose, treat, and manage a various illness and diseases, including respiratory therapy, cardiology, vision screening, and physical assessment; surgical video technologies, tables, lights, pendants, precision positioning devices and other accessories.

Baxter International Fundamentals Summary

How do Baxter International's earnings and revenue compare to its market cap?
BAX fundamental statistics
Market Cap	US$30.20b
Earnings (TTM)	US$1.01b
Revenue (TTM)	US$14.19b

30.1x

P/E Ratio

2.1x

P/S Ratio

Is BAX overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
BAX income statement (TTM)
Revenue	US$14.19b
Cost of Revenue	US$8.34b
Gross Profit	US$5.85b
Other Expenses	US$4.84b
Earnings	US$1.01b

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	2.01
Gross Margin	41.22%
Net Profit Margin	7.12%
Debt/Equity Ratio	187.4%

How did BAX perform over the long term?

See historical performance and comparison

Dividends

1.9%

Current Dividend Yield

56%

Payout Ratio

Does BAX pay a reliable dividends?

See BAX dividend history and benchmarks

When do you need to buy BAX by to receive an upcoming dividend?
Baxter International dividend dates
Ex Dividend Date	Sep 01 2022
Dividend Pay Date	Oct 03 2022
Days until Ex dividend	19 days
Days until Dividend pay date	51 days

Does BAX pay a reliable dividends?

See BAX dividend history and benchmarks

We’ve recently updated our valuation analysis.

Valuation

Is BAX undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

5/6

Valuation Score 5/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for BAX?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for BAX. This is calculated by dividing BAX's market cap by their current preferred multiple.
What is BAX's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$30.20b

BAX key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	3.2x
Enterprise Value/EBITDA	14x
PEG Ratio	1.6x

Price to Earnings Ratio vs Peers

How does BAX's PE Ratio compare to its peers?

BAX PE Ratio vs Peers

The above table shows the PE ratio for BAX vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	58.6x
RMD ResMed	45.1x	13.1%	US$35.1b
IDXX IDEXX Laboratories	49.7x	12.4%	US$33.0b
ZBH Zimmer Biomet Holdings	84.6x	22.1%	US$24.6b
STE STERIS	56.8x	18.7%	US$21.4b
BAX Baxter International	30.1x	19.1%	US$30.4b

Price-To-Earnings vs Peers: BAX is good value based on its Price-To-Earnings Ratio (30.1x) compared to the peer average (59x).

Price to Earnings Ratio vs Industry

How does BAX's PE Ratio compare vs other companies in the US Medical Equipment Industry?

Price-To-Earnings vs Industry: BAX is good value based on its Price-To-Earnings Ratio (30.1x) compared to the US Medical Equipment industry average (33.7x)

Price to Earnings Ratio vs Fair Ratio

What is BAX's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

BAX PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	30.1x
Fair PE Ratio	38.9x

Price-To-Earnings vs Fair Ratio: BAX is good value based on its Price-To-Earnings Ratio (30.1x) compared to the estimated Fair Price-To-Earnings Ratio (39x).

Share Price vs Fair Value

What is the Fair Price of BAX when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: BAX ($60.46) is trading below our estimate of fair value ($106.63)

Significantly Below Fair Value: BAX is trading below fair value by more than 20%.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is less than 20% higher than the current share price.

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Future Growth

How is Baxter International forecast to perform in the next 1 to 3 years based on estimates from 13 analysts?

Future Growth Score

3/6

Future Growth Score 3/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

19.1%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: BAX's forecast earnings growth (19.1% per year) is above the savings rate (1.9%).

Earnings vs Market: BAX's earnings (19.1% per year) are forecast to grow faster than the US market (14.4% per year).

High Growth Earnings: BAX's earnings are forecast to grow, but not significantly.

Revenue vs Market: BAX's revenue (4.7% per year) is forecast to grow slower than the US market (7.9% per year).

High Growth Revenue: BAX's revenue (4.7% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: BAX's Return on Equity is forecast to be high in 3 years time (24.9%)

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Past Performance

How has Baxter International performed over the past 5 years?

Past Performance Score

1/6

Past Performance Score 1/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

3.0%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: BAX has a large one-off loss of $674.0M impacting its June 30 2022 financial results.

Growing Profit Margin: BAX's current net profit margins (7.1%) are lower than last year (9.2%).

Past Earnings Growth Analysis

Earnings Trend: BAX's earnings have grown by 3% per year over the past 5 years.

Accelerating Growth: BAX's has had negative earnings growth over the past year, so it can't be compared to its 5-year average.

Earnings vs Industry: BAX had negative earnings growth (-9.7%) over the past year, making it difficult to compare to the Medical Equipment industry average (2.5%).

Return on Equity

High ROE: BAX's Return on Equity (11.5%) is considered low.

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Financial Health

How is Baxter International's financial position?

Financial Health Score

2/6

Financial Health Score 2/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: BAX's short term assets ($7.9B) exceed its short term liabilities ($3.9B).

Long Term Liabilities: BAX's short term assets ($7.9B) do not cover its long term liabilities ($19.0B).

Debt to Equity History and Analysis

Debt Level: BAX's net debt to equity ratio (166.6%) is considered high.

Reducing Debt: BAX's debt to equity ratio has increased from 37.7% to 187.4% over the past 5 years.

Debt Coverage: BAX's debt is not well covered by operating cash flow (11.1%).

Interest Coverage: BAX's interest payments on its debt are well covered by EBIT (6.9x coverage).

Balance Sheet

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Dividend

What is Baxter International current dividend yield, its reliability and sustainability?

Dividend Score

3/6

Dividend Score 3/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Cash Flow Coverage

1.92%

Current Dividend Yield

Upcoming Dividend Payment

Dividend Yield vs Market

Notable Dividend: BAX's dividend (1.92%) is higher than the bottom 25% of dividend payers in the US market (1.49%).

High Dividend: BAX's dividend (1.92%) is low compared to the top 25% of dividend payers in the US market (4%).

Stability and Growth of Payments

Stable Dividend: BAX's dividend payments have been volatile in the past 10 years.

Growing Dividend: BAX's dividend payments have fallen over the past 10 years.

Earnings Payout to Shareholders

Earnings Coverage: With its reasonable payout ratio (56.1%), BAX's dividend payments are covered by earnings.

Cash Payout to Shareholders

Cash Flow Coverage: With its reasonable cash payout ratio (51.9%), BAX's dividend payments are covered by cash flows.

Discover strong dividend paying companies

Management

How experienced are the management team and are they aligned to shareholders interests?

3.8yrs

Average management tenure

CEO

Joe Almeida (60 yo)

6.58yrs

Tenure

US$15,634,734

Compensation

Mr. Jose E. Almeida, also known as Joe, has been the Chairman of the Board and Chief Executive Officer of Baxter International Inc. since January 1, 2016 and serves as its President since January 01, 2016....

CEO Compensation Analysis

Compensation vs Market: Joe's total compensation ($USD15.63M) is about average for companies of similar size in the US market ($USD12.88M).

Compensation vs Earnings: Joe's compensation has been consistent with company performance over the past year.

Leadership Team

Experienced Management: BAX's management team is considered experienced (3.8 years average tenure).

Board Members

Experienced Board: BAX's board of directors are considered experienced (5.5 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: Insufficient data to determine if insiders have bought more shares than they have sold in the past 3 months.

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.

Data	Last Updated (UTC time)
Company Analysis	2022/08/12 00:00
End of Day Share Price	2022/08/12 00:00
Earnings	2022/06/30
Annual Earnings	2021/12/31