Get BAX in the Action

Chances to buy premier companies at fabulous prices only surface on rare occasions. There is always something bothering sellers that makes them abandon ship. When that news is overblown, though, smart investors should be piling in for future upside. Baxter International is now in that exact position. The firm garners top grades for both financial strength and stock price stability. Its earnings predictability falls into the top quartile of all stocks. BAX took its current iteration on July 1, 2015, when it spun off its biopharmaceutical division. The data below show results for all full years for the present-day version of BAX. Five-year growth was quite good across all major metrics. EPS grew by almost 82%. Dividends were increased by 132.6%. After dropping 50.4%, from $89.90 about one year ago to just $44.54 on Monday, BAX is now available for a tad less than its six-year ago price. The only way that was possible is through price-to-earnings contraction. BAX fetched 23.2-times trailing earnings in early 2017. It sells for only about 12.5-times trailing EPS for 2022 today. From 2016 through 2022 Baxter's average multiple was 23.7-times, accompanied by around 1.08% in yield. At its current $0.29 quarterly dividend rate the 2.60% yield is now more than 138% higher than BAX's typical payout. Why are BAX shares so depressed then? 2021 saw record EPS of $3.61. 2022 is likely to be slightly below that if fourth-quarter estimates for 2022 are accurate. That represents just a 1.4% retracement off the all-time high results during the stimulus year. Analysts see only a slight increase for the new year due to subdued economic conditions. Baxter peaked between $88.30 and $95.30 during each of the four years 2019 through 2022. Only one of those years saw EPS as high as what is now projected for 2023. There is no rationale reason for BAX to be down by more than half. Previous best buying opportunities (green-starred above) launched big rallies from starting P/Es running from 17.5-times to 20.0-times. Based on its Monday, 12.5-times forward valuation, there has never been a better time to go long BAX. Simply bouncing back to 20-times earnings could easily send BAX to $71.60. Reverting to a more typical multiple offers even larger upside potential. Party poopers at Yahoo Finance only call for a $59.16 year-ahead target price. That appears overly conservative as it assumes BAX only retakes a 16.5-times multiple. Reaching even that goal, though, would still deliver an attractive 35.4% total return. Fast Graphs research calls BAX's average P/E as 19.38-times, as it uses old data from before the latest spin-off occurred in 2015. Getting back to only hat valuation on this year's estimate would take BAX back up to $70.20. 12-month total return to FG's goal is 58.6%. Morningstar is more enthusiastic on BAX's prospects. It labels the shares as a 5-star (highest) buy. Morningstar deigns to provide year-ahead goal prices but does let us know what they see as present-day fair value for each stock they cover. For BAX that number sits at $85, greater than 90% above its Monday quote. Guru Focus seconds that notion plus goes a bit further. It calls Baxter's present day fair value as $105.49. It projects fair value will reach $109.59 by Dec. 31, 2023. By all rational standards, BAX is worth way more than its current price. Even the most conservative projections would make for excellent returns. A full recovery to its old valuation parameters could provide 50% - 100% gains. Reverse engineering the current $1.16 annual dividend to a typical 1.08% suggests $107.40 as a reasonable target price. Buying shares outright is the best way to play BAX for unlimited upside, a decent 2.6% income stream and no preset holding period. Option traders with long time horizons could also consider shorting January 2025 expiration date naked puts on BAX at 45, $50 or $55 strike prices. Actual pricing for those, with BAX at $45.51, are shown below. Worst-case, forced purchase prices dropped to from $38.60 to $42.50 depending on the strike prices employed. They appear to be extremely low-risk as BAX spent most of the past 5 years, hovering between $70 and $90 per share. Owning BAX at even the most aggressive of the examples shown would have been a winning position 100% of the time dating back more than a half decade. Notice, too, that EPS are about 17% higher now than they were in 2018. Plus, annual dividends rose by 65.7% over that span. Buy BAX shares, short some puts or consider doing both.

Get BAX in the Action

Baxter International is now at the best entry point to date. Let's see how to play it.

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