Does Baxter Offer Opportunity After a 37% Share Price Drop and Business Restructuring?

• Wondering if Baxter International is a hidden gem or a value trap? You’re not alone, especially with the stock catching the eye of investors searching for a bargain.

• Despite a tough market stretch with a 20.1% dip over the past month and a dramatic 37.4% drop year-to-date, many are asking whether the risk has actually created new upside.

• In recent weeks, headlines have focused on Baxter’s strategic moves, including updates around divestitures and streamlining its business operations. These changes have been interpreted by some as steps toward stabilizing the firm’s financial health and regaining investor confidence.

• According to our quick scorecard, Baxter International scores 5 out of 6 on key valuation checks. This suggests it is undervalued by several important measures. We’ll walk through those methods next and share why the real picture of value might be even more nuanced than these scores alone reveal.

Find out why Baxter International’s -43.6% return over the last year is lagging behind its peers.

The Discounted Cash Flow (DCF) model aims to estimate a company’s intrinsic value by projecting its future cash flows and discounting them back to today. For Baxter International, this method uses expected Free Cash Flow (FCF) figures as a core input.

Currently, Baxter International generates FCF of around $261 million. Analyst forecasts extend to 2027, expecting FCF to grow steadily to $943 million by that year. Beyond this, projections are extrapolated, with FCF expected to exceed $1.4 billion in 2035. These projections highlight consistent growth in operational cash generation, which is a fundamental signal of underlying value.

By aggregating and discounting these future cash flows, the model calculates an intrinsic value of $29.53 per share. This figure is almost 38% higher than the current market price, suggesting the stock could be significantly undervalued if these expectations are met.

Based on the DCF outcome, Baxter International is trading at a sizable discount to its calculated intrinsic worth. This indicates strong upside potential for value-oriented investors.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Baxter International is undervalued by 38.0%. Track this in your watchlist or portfolio, or discover 918 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Baxter International.

The Price-to-Sales (P/S) ratio is often the go-to valuation metric for companies where top-line growth provides useful context, especially if earnings are volatile or temporarily negative. This makes P/S a relevant benchmark for Baxter International right now, as it highlights how much investors are paying for every dollar of revenue, regardless of short-term profit swings.

In industries like Medical Equipment, a “normal” or “fair” P/S ratio reflects not just growth expectations but also risk and wider market sentiment. Higher growth prospects and lower risk usually warrant a higher multiple, while the reverse is true for slower growth or elevated uncertainty. Context is key, which is why comparing across multiple valuation markers is critical.

Currently, Baxter International trades at a P/S ratio of 0.85x. This stands in stark contrast to the industry average of 2.96x and the peer average of 4.62x, both considerably higher. However, benchmarks alone do not paint the full picture. Simply Wall St’s proprietary Fair Ratio, which weighs Baxter’s revenue growth, profit margins, industry stature, and risk factors, suggests a fair price-to-sales of 1.28x for Baxter.

The advantage of using a Fair Ratio is that it is more nuanced than an industry or peer comparison. It takes into account company-specific growth rates, risk profile, profitability, market capitalization, and the unique characteristics of the Medical Equipment sector, offering a more accurate view of where the stock’s value should sit.

Since Baxter’s current P/S of 0.85x is below the Fair Ratio of 1.28x, the shares appear undervalued using this method as well.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1422 companies where insiders are betting big on explosive growth.

Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a simple, story-driven approach where you combine your perspective on a company, such as Baxter International, with financial forecasts to estimate fair value based on your own assumptions about future revenue, margins, and risks.

By linking the company’s story to tangible financial goals, Narratives help you see how your outlook translates into a price and highlight what would need to happen for Baxter’s stock to be a buy or sell at today’s price.

Narratives are available and easy to access through Simply Wall St’s Community page, where millions of investors use this powerful tool to test their convictions and share views.

The best part is, Narratives update in real time as new news or results come in, automatically adjusting your fair value and risk assessment. Your investment decision always stays current.

For example, some Baxter investors see a bright future and forecast earnings near $1 billion with a price target as high as $47, while others remain cautious, projecting $750 million in profits and a price closer to $19. This demonstrates how Narratives reflect a range of views and help you make smarter, more tailored decisions.

Do you think there’s more to the story for Baxter International? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include BAX.

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