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Should I Buy Baxter Stock Below $60?


Baxter shares (NYSE: BAX ) is down 32% this year, underperforming the broader S&P500, which is down 17%. Even if we take a longer-term view, BAX shares, with returns of -10% from the levels seen at the end of 2017, have underperformed the S&P 500 index, up 47%. After Baxter’s recent decline, we believe it now has room to grow, as discussed below.

This 10% drop in Baxter stock since the end of 2017 can primarily be attributed to 1. a 33% decline in the company’s P/S ratio to 2.1x revenue now, compared to 3.1x in 2017, 2. an 11% increase in total shares outstanding to 504 million, partially offset by 3. Baxter’s revenue increasing 34% to $14.2 billion in the trailing twelve months, compared to $10.6 billion in 2017. The increase in revenue and shares outstanding saw Baxter’s earnings per share rise just 20% to $28.16 over the trailing twelve months, compared to $23.38 in 2017. Our dashboard is included Why Baxter Stock Moved has more details.

Baxter’s sales growth in recent years has been driven by increased demand for advanced surgical products. In December 2021, Baxter completed its acquisition of Hillrom, adding connected care offerings including smart beds and patient monitoring products to Baxter’s existing range of acute care, nutrition, renal care, hospital and surgical care products. The Hillrom acquirer is expected to have low double-digit earnings per share by 2023, and even higher in subsequent years.

Baxter’s net profit margins are shrinking with higher inflation, leading to higher raw material costs and supply chain disruptions, which also affect margin growth. For perspective, the company reported 56% growth in SG&A expenses in the first half of 2022, compared to 23% growth in total sales. Baxter’s operating margin is now down to 6.4%, down from 11.6% in 2017 and 15.0% in 2019 before the pandemic. Ours Baxter Operating Income Comparison the dashboard has more detailed information.

Looking at BAX shares, we estimate Baxter’s score will be $64 per share, reflecting a 10% upside potential from the current market price of $58. At current levels, BAX shares are trading at 1.9x forward earnings, compared to the past three-year average of 3.3x, meaning they have more room for upside. However, we do not expect significant growth from current levels, in part due to reduced operating margins. While the company expects its operating margins to improve in the coming years, this will depend on the integration with Hill-Rom, while it continues to face inflationary headwinds in the near term.

While BAX stock looks like it has more room for upside, it’s good to know how to do it Peers of Bakst rates on metrics that matter. You will find other valuable comparisons for companies in different industries at Peer comparisons.

In addition, the Covid-19 crisis has created many price gaps that can offer attractive trading opportunities. For example, you’d be surprised at how counterintuitive stock valuation is Phibro Animal Health v. Tri Pointe Homes.

What if you’re looking for a more balanced portfolio instead? Ours quality portfolio and multi-strategy portfolio have consistently beaten the market since late 2016.

Returns September 2022
MTD [1]
2022 year
Since the beginning of the year [1]
In total [2]
Return of BAX 1% -32% 31%
The return of the S&P 500 -1% -17% 76%
Trefis Multi-Strategy Portfolio 1% -15% 236%

[1] From the beginning of the month and year as of 09/14/2022
[2] Cumulative total return since the end of 2016

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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