On Monday, Morgan Stanley adjusted its stance on Baxter International (NYSE:BAX) stock, downgrading it from Equalweight to Underweight and slashing the price target to $30 from $39. The firm's analysis suggests that Baxter's financial outlook may be more challenging than previously anticipated, particularly in light of its acquisition of Hillrom.
The company's shares have not been this low since 2012, and Morgan Stanley expresses concerns regarding Baxter's ability to meet the optimistic margin expectations set by the market. The firm points out that the current business composition and cost environment may hinder the company's ability to return to the 17-18% margin levels seen in 2019.
The downgrade reflects a more conservative viewpoint on the company's mid-term earnings, with Morgan Stanley's estimates falling 7% below the market consensus for the year 2027. Additionally, the price target adjustment is based on a reduced target multiple of 8.5 times the projected 2025 EBITDA, owing to uncertainties about margin progression.
Baxter's potential upside is acknowledged, contingent on the company's ability to improve margins and pricing more rapidly than expected. The firm also notes that less dilutive US injectable pricing than anticipated could positively impact Baxter's valuation, with a bull case scenario of $42.
However, the lack of immediate catalysts, except for the potential sale of Vantive, leads the analyst to believe that other stocks in the sector may offer more relative upside at this time.
In other recent news, Baxter International delivered robust financial results for the first quarter of 2024, with global sales increasing by 2% on a reported basis and a 3% rise at constant currency rates.
The company's diverse product demand and strategic pricing contributed to this growth, particularly in the Medical Products and Therapies segment, which saw a 6% surge, and the Pharmaceutical segment, which achieved an 11% growth. However, the Healthcare Systems & Technologies segment faced a 9% decline due to operational issues.
Goldman Sachs reiterated its Neutral rating on Baxter International, maintaining a price target at $36.00. Goldman Sachs is optimistic about Baxter's potential to reach approximately 17% operating margins by 2026, slightly above their estimate of 16.9%. The firm also projects an increase of 4.4% in 2025 compared to 3.7% in 2024, excluding the Kidney Care segment.
Baxter International Inc (NYSE:BAX). has received U.S. Food and Drug Administration (FDA) approval to expand the use of its Clinolipid to pediatric patients, including preterm and term neonates. The product, previously available for adults since 2019, is now available to patients of all ages who require intravenous nutrition.
In terms of analyst coverage, UBS revised Baxter's price target to $40.00, down from the previous $42.00, maintaining a Neutral rating. TD Cowen downgraded Baxter's stock from Buy to Hold due to performance concerns in the Hospital Services and Technologies segment. These are some of the recent developments surrounding Baxter International Inc.
InvestingPro Insights
In light of Morgan Stanley's recent downgrade of Baxter International (NYSE:BAX), a look at the latest InvestingPro data and tips can provide additional context for investors. With a current market cap of $18.0 billion and a dividend yield of 3.28%, Baxter stands out for its commitment to shareholder returns, having raised its dividend for 7 consecutive years and maintained payments for 54 consecutive years. This dedication to dividends is a significant factor, especially when considering the company's long-term investment potential.
Despite challenges, Baxter's net income is expected to grow this year, which could signal a turnaround from the previous year's performance. The company's low price volatility also suggests a level of stability in its stock price. However, it is worth noting that 7 analysts have revised their earnings downwards for the upcoming period, indicating potential headwinds in the near term.
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