HomeMost PopularInvestingCan Baxter Stock Rebound to Previous Highs After Inflation Shock?

Can Baxter Stock Rebound to Previous Highs After Inflation Shock?

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Baxter stock (NYSE: BAX) is currently trading at $41 per share, significantly lower than the March 2021 level. However, there is potential for it to rise in the future. BAX stock was valued at around $64 in June 2022 before the Federal Reserve started increasing interest rates. It has since declined by 35%, while the S&P 500 has gained 15% during the same period. The stock’s underperformance can be attributed to low sales growth in the first half of 2023, and concerns about a potential recession persist despite a decline in inflation rates due to the Fed’s rate hike strategy.

The Sharpe Ratio for BAX stock has been consistently worse than that of the S&P 500 since early 2017. On the other hand, the Trefis Reinforced Value portfolio has shown a higher Sharpe Ratio. This indicates that high-performance portfolios can offer better returns per unit of risk.

Analyzing Baxter’s Performance During Inflation Shock and Previous Crises

To reach its pre-inflation shock level of about $90, BAX stock would need to gain over 115%. While this may not happen in the near future, there is potential for the stock to rise from its current levels. The stock is currently valued at 1.4 times its revenue, compared to 2.0 times in late 2022.

During the 2007/2008 crisis, BAX stock declined by 26% from its peak in August 2008 and recovered by 15% by early 2010. In contrast, the S&P 500 index saw a decline of 51% during the crisis but recovered by 48% by January 2010.

Baxter’s Fundamentals and Debt Situation

Baxter’s revenue increased from $11.4 billion in 2019 to $15.1 billion in 2022, driven by higher demand for advanced surgery products. The company’s operating margin declined from 15.0% in 2019 to -15.5% in 2022, primarily due to an impairment charge related to the Hillrom acquisition. Baxter’s total debt increased from $5.4 billion in 2019 to $16.6 billion in 2022, while its cash decreased from $3.3 billion to $1.7 billion during the same period. The company generated $1.2 billion in cash flows from operations in 2023, but the high debt burden poses a near-term risk.

Conclusion: Potential for Growth with Risk Factors

Despite recent challenges, Baxter stock has the potential for gains as market sentiments improve with the Federal Reserve’s efforts to control inflation. However, the company’s balance sheet and operating margins continue to pose risks to realizing these gains.

[1] Month-to-date and year-to-date returns as of 8/25/2023
[2] Cumulative total returns since the end of 2016

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official views of Nasdaq, Inc.

Source: Nasdaq.com

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