As of July 20, 2023, Baxter International Inc (BAX, Financial) has seen a day's gain of 3.01%, with its stock price standing at $49.29. The company, with a market capitalization of $24.9 billion, is currently under scrutiny for its GF Value, which is estimated to be $101.76. This valuation places Baxter International in the category of a possible value trap, urging investors to think twice before investing.
Baxter International, a renowned name in the medical instruments and supplies industry, has significantly expanded its portfolio since its inception. The late 2021 acquisition of Hillrom has further bolstered its offering, adding basic equipment like hospital beds to its portfolio. Despite this, Baxter International's financial metrics and GF Value indicate potential concerns for investors.
Understanding the GF Value
The GF Value of a stock is a unique measure of its intrinsic worth, derived from historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. When a stock's price is significantly above the GF Value Line, it may be overvalued and have poor future returns. Conversely, if the stock's price is significantly below the GF Value Line, it may be undervalued and have high future returns. In the case of Baxter International, the stock is currently considered a possible value trap.
Financial Strength Analysis
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Baxter International's cash-to-debt ratio of 0.1 is worse than 93.37% of companies in the Medical Devices & Instruments industry. This indicates that the financial strength of Baxter International is poor, ranking at 4 out of 10 on the GuruFocus scale.
Profitability and Growth
Profitable companies, particularly those with consistent profitability over the long term, are less risky investments. Baxter International has been profitable 9 out of the past 10 years. However, its 3-year average annual revenue growth of 11.1% ranks better than 60.56% of companies in the industry, while its 3-year average EBITDA growth rate ranks worse than 0% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide valuable insights into its profitability. Baxter International's ROIC over the past 12 months was 3.87, while its WACC came in at 4.81.
Conclusion
In conclusion, Baxter International (BAX, Financial) appears to be a possible value trap. Despite fair profitability, the company's financial condition is poor and its growth ranks worse than most companies in the Medical Devices & Instruments industry. For a more detailed analysis of Baxter International's financials, you can check out its 30-Year Financials here.
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