Baxter International Inc (BAX)

Conclusion

Baxter International Inc is a US maker of healthcare products, including sterile IV solutions, infusion systems, parenteral nutrition and specialty injectable drugs, sold mainly to hospitals and to patients at home. On 9 November 2026 the shares were priced at 26.41 USD, giving a market capitalisation of 13.66 billion USD and an enterprise value of 20.50 billion USD.

The verdict is undervalued. Against their own ten-year medians, the current EV/EBITDA of 25.56x is 29.93% above the historical median of 19.67x, while the price to free cash flow of 13.66x is 54.06% below its median of 29.74x. The price to sales of 1.18x and the price to book of 2.10x also sit well below their medians. The DCF gives 23.90 USD per share at a discount rate of 8.9%. The fair value band runs from 30.64 to 45.96 USD with a midpoint of 38.30 USD and a margin of safety of 45.03%, and the fair value from historical multiples is 52.71 USD. The reverse DCF implies growth of 1.93% a year, while revenue has compounded at -0.75% over five years and free cash flow per share at -22.43%.

What holds the case up is a current ratio of 1.79x, free cash flow after stock-based compensation of 890 million USD over the last twelve months, and a Beneish M-score of -2.60, labelled unlikely. What would break it is interest coverage of 0.35x, net debt to EBITDA of 8.5x, and a return on invested capital of 0.59% against a weighted cost of capital of 6.92%.

Financial health

Financial strength is red: the current ratio of 1.79x supports it, while net debt to EBITDA of 8.5x and interest coverage of 0.35x pull it down. The quick ratio is 0.99x and debt to equity is 1.35x, both as of 30 September 2026.

The Altman Z-score is 2.45, in the grey zone. The Altman model was designed for manufacturers, and Baxter's product business is close to that profile, but the zone is only a rough guide here. Insolvency risk: low, about 2.1% by the estimate of the Ohlson model over one to two years, based on figures at 31 December 2025.

Earnings quality

Earnings quality is green, held up by the Beneish M-score of -2.60, labelled unlikely, and by a five-year share count change of -0.16% a year, which points to small net buybacks. The Piotroski score is 4 of 9, neutral. Free cash flow conversion, trailing and five-year, is not available. The annual accruals ratio is -7.9% and stock-based compensation is 0.95% of revenue. The company beat estimates in 6 of the last 8 quarters, with an average surprise of 13.09%. Current-year estimates rose 2.79% over 90 days, with 8 upward revisions and none downward in the last 30 days. Next-year estimates fell 0.94% over 90 days, and the implied next-year growth is -2.85%.

Profitability

Profitability is red, with all four measures assessed as bad. The gap between return on invested capital and the cost of capital is the main drag: ROIC of 0.59% against a WACC of 6.92%, a difference of -6.34%, with a five-year median ROIC of 0.50%. Margins are negative and far below their ten-year medians: operating margin -1.9% against 9.22%, net margin -6.23% against 9.13%, and gross margin 30.09% against 39.68%. Return on equity is -11.12%. The DuPont split for 2025 shows a net margin of -8.51%, an asset turnover of 0.56x and an equity multiplier of 3.27x. Leverage therefore magnifies the loss rather than inflating a profit. The tax rate of 21% is assumed.

Growth

Growth is red. Revenue compounded at 3.79% over three years, -0.75% over five years and 1.21% over ten years. Revenue grew in 9 of the last 10 comparable years. Free cash flow per share fell at -15.82% over three years, -22.43% over five years and -8.71% over ten years. The next-year earnings estimate implies -2.85% growth. The earnings per share growth rate is not available.

Valuation

Valuation is green, held up by a margin of safety of 45.03% against the fair value midpoint. Current EV/EBITDA of 25.56x is 29.93% above its ten-year median of 19.67x, while price to free cash flow of 13.66x is 54.06% below 29.74x, price to sales of 1.18x is 61.92% below 3.09x, and price to book of 2.10x is 44.89% below 3.81x. A current earnings multiple is not meaningful because earnings are negative. The DCF gives 23.90 USD per share, using a 8.9% discount rate, 0% growth in the first stage and 2.5% terminal growth, with the terminal value making up 53% of the result. The fair value band is 30.64 to 45.96 USD, and the fair value from historical multiples is 52.71 USD. The reverse DCF implies growth of 1.93%, a gap of 2.67 points against five-year revenue growth. The fair value figures are order-of-magnitude estimates built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The dividend yield is 0.78%, with a payout of 10.7% of free cash flow.

Risks

The main risk is leverage: net debt of 8.5x EBITDA means earnings would need to recover substantially before debt is comfortably serviced. Interest coverage of 0.35x means a further fall in operating earnings would leave little room to meet interest payments. A return on invested capital of 0.59% below a 6.92% cost of capital means the business is not yet earning its cost of capital, and negative operating margins keep that gap open. Five-year revenue decline and a next-year estimate of -2.85% growth would weaken the growth case further. Free cash flow conversion, trailing and five-year, and the earnings per share growth rate are not available, and the current earnings multiple cannot be used. This analysis has no debt maturity schedule and no revenue split by segment, so the refinancing timing and the contribution of each business cannot be checked. The fair value depends on the assumptions described above, and the DCF result rests on a terminal growth rate of 2.5%.