Baxter International Inc Valuation – January 2017 $BAX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Baxter International Inc (BAX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Baxter International Inc., through its subsidiaries, provides a portfolio of essential renal and hospital products, including home, acute and in-center dialysis; sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition; biosurgery products and anesthetics, and pharmacy automation, software and services. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures IV solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, infusion pumps, inhalation anesthetics, and biosurgery products. The business also provides products and services related to pharmacy compounding, and drug formulation. The Renal business provides products and services to treat end-stage renal disease, or irreversible kidney failure and acute kidney injuries.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of BAX – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $25,557,798,383 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.53 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 64.10% Pass
6. Moderate PEmg Ratio PEmg < 20 9.12 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.99 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.53 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $5.16
MG Growth Estimate 6.53%
MG Value $111.31
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $74.84
MG Value based on 0% Growth $43.87
Market Implied Growth Rate 0.31%
Current Price $47.08
% of Intrinsic Value 42.29%

Baxter International Inc qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.6 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Baxter International Inc revealed the company was trading below its Graham Number of $56.96. The company pays a dividend of $0.49 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 9.12, which was below the industry average of 32.29, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.96.

Baxter International Inc fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.96
Graham Number $56.96
PEmg 9.12
Current Ratio 2.53
PB Ratio 2.99
Current Dividend $0.49
Dividend Yield 1.04%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $6,589,000,000
Total Current Liabilities $2,606,000,000
Long-Term Debt $0
Total Assets $15,795,000,000
Intangible Assets $3,859,000,000
Total Liabilities $7,118,000,000
Shares Outstanding (Diluted Average) 551,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.04
Dec2015 $1.76
Dec2014 $4.56
Dec2013 $3.66
Dec2012 $4.18
Dec2011 $3.88
Dec2010 $2.39
Dec2009 $3.59
Dec2008 $3.16
Dec2007 $2.61
Dec2006 $2.13
Dec2005 $1.52
Dec2004 $0.63
Dec2003 $1.50
Dec2002 $1.66
Dec2001 $1.09
Dec2000 $1.25
Dec1999 $1.35
Dec1998 $0.55
Dec1997 $0.53
Dec1996 $1.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.16
Dec2015 $3.35
Dec2014 $4.01
Dec2013 $3.67
Dec2012 $3.60
Dec2011 $3.24
Dec2010 $2.88
Dec2009 $2.95
Dec2008 $2.42
Dec2007 $1.93
Dec2006 $1.55
Dec2005 $1.27
Dec2004 $1.17
Dec2003 $1.42
Dec2002 $1.31
Dec2001 $1.07
Dec2000 $1.04

Recommended Reading:

Other ModernGraham posts about the company

Baxter International Inc Valuation – February 2016 $BAX
The Best Companies of the Medical Industry – September 2015
15 Best Stocks For Value Investors This Week – 9/12/15
Baxter International Inc. Analysis – September 2015 Update $BAX
Baxter International Analysis – June 2015 Update $BAX

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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