This Health Care Stock Rarely Gets Cheap. Right Now, It's a Bargain

Baxter International rarely gets cheap. Value Line says its shares' 10-year median multiple has been 23-times, accompanied by about 1.17% in current yield since the July 2015 spin-off of Baxalta. Baxalta was subsequently merged with Shire Pharmaceuticals. The table below shows the progress made from 2016 through the present on the post-Baxalta iteration of BAX. Dividends more than doubled while all other key metrics advanced by from 50.5% to 60.6%. Surprisingly, BAX was offered today at a lower absolute and dividend-adjusted basis than for what it fetched exactly seven-years earlier. Getting something much more valuable, at a lower price, is a great thing for those investing in Baxter International right now. Situations like that are almost always resolved via catch-up moves higher in the share price to arbitrage away the price to value discrepancy. BAX earns an A+ financial strength rating from Value Line along with very high percentile rankings for both stock price stability and earnings predictability. Ignore its average price growth persistence score, due strictly to its last 18-month decline, and BAX far outperformed most other stocks covered in Value Line's 1700-company main research universe. Management announced the pending sale of its BioPharma Solutions division for $4.25 billion last May. When the deal settles later this year much of that cash will be used to pay down debt. A spin-off of Baxter's Kidney Care unit has been proposed for distribution by July of 2024 or earlier. Current shareholders will end up with stakes in both companies once the spin-off is completed. Often, the sum of the parts end sup being valued more highly than the whole as investors get two pure-play firms rather than one larger conglomerate. The data below reflect the company in its current form starting with mid-July of 2015. I calculated BAX's average price-to-earnings as 23.1-times and call a typical yield as 1.17%. As of early afternoon on Monday, Baxter's current year P/E is only 14.8-times, while its yield is 2.66%, more than double it average level. Even a partial regression-towards-the-mean multiple of 20-times suggests an end of 2024 goal price of $64. That implies eighteen-month total return potential of almost 51%. If BAX revives to a 23.1-times its 2024 estimate of $3.20 it could reach nearly $74. Independent research house Morningstar calls BAX a 4-star, out of five, BUY. Morningstar deigns to provide year-ahead target prices but does let us know they see present-day fair value for BAX as $67. The chart below says that BAX has almost never offered better value than today versus its calculated true worth. During most of 2016 through the end of 2021 the shares commanded well above it fair value estimate. Option-savvy traders might wish to short some naked puts on BAX out to Jan. 17, 2025. Actual pricing on its in-the-money $45, $50, and $55 puts would deliver excellent premium up front while locking in worst-case, forced purchase prices ranging from $38.90 to $42.30 (when BAX was quoted at $43.67). Future stock market action can never be guaranteed. That said, owning BAX at any of the if exercised prices shown would have been a winning position for all but a few weeks out of the most-recent six years. Note that the proposed Kidney Care spin-off would be adjusted for as a Humpty Dumpty-ed package of the parent company plus the spun-off shares once that transaction is completed. Option buyers or sellers would still own, or be short, the combined valued of the two pieces added together. Baxter International is an institutional favorite. As with stocks like Netflix , Meta Platforms and Nvidia , sharp selloffs in those type shares are typically followed by massive rebounds once the momentum turns positive again. Baxter's rebound could come quite quickly from its currently depressed quote, high yield, and bargain valuation. Buy some shares, short some naked puts, or consider doing both.

This Health Care Stock Rarely Gets Cheap. Right Now, It's a Bargain

Baxter International is a blue-chip stock at a white-chip valuation, and I expect the sharp selloff to get followed by a big rebound once the momentum turns positive again.

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