Baxter International shares fell by -2.6% during the day's afternoon session, and are now trading at a price of $40.95. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Baxter International's Valuation Is in Line With Its Sector Averages:
Baxter International Inc., through its subsidiaries, develops and provides a portfolio of healthcare products worldwide. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 24.45 and an average price to book (P/B) ratio of 4.16. In contrast, Baxter International has a trailing 12 month P/E ratio of -7.3 and a P/B ratio of 3.72.
Baxter International's PEG ratio is 3.53, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Business Is Unprofitable and Its Balance Sheet Is Highly Leveraged:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $11,362 | $11,673 | $12,784 | $15,113 |
| Gross Margins | 41.9% | 39.3% | 39.9% | 35.7% |
| Operating Margins | 7.7% | 13.8% | 13.4% | 5.8% |
| Net Margins | 8.81% | 9.44% | 10.04% | -16.1% |
| Net Income (MM) | $1,001 | $1,102 | $1,284 | -$2,433 |
| Net Interest Expense (MM) | -$71 | -$134 | -$192 | -$395 |
| Depreciation & Amort. (MM) | -$789 | -$823 | -$890 | -$1,403 |
| Earnings Per Share | $1.93 | $2.13 | $2.53 | -$5.59 |
| EPS Growth | n/a | 10.36% | 18.78% | -320.95% |
| Diluted Shares (MM) | 519 | 517 | 508 | 506 |
| Free Cash Flow (MM) | $1,408 | $1,159 | $1,479 | $532 |
| Capital Expenditures (MM) | -$696 | -$709 | -$743 | -$679 |
| Net Current Assets (MM) | -$2,778 | -$2,882 | -$15,528 | -$14,381 |
| Current Ratio | 2.32 | 2.52 | 2.09 | 1.69 |
| Long Term Debt (MM) | $4,809 | $5,786 | $17,149 | $15,232 |
| LT Debt to Equity | 0.61 | 0.67 | 1.89 | 2.61 |
Baxter International's financial statements include several red flags such as slimmer gross margins than its peers, weak operating margins with a negative growth trend, and declining EPS growth. Additionally, the firm has high levels of debt. On the other hand, the company benefits from growing revenues and a flat capital expenditure trend and consistent free cash flow. Furthermore, Baxter International has a decent current ratio.
