Baxter Turns in Weak Q4 and Projects Profit Decline in 2023; Reducing FVE

Narrow-moat Baxter mildly missed our expectations for 2022 after a weaker-than-expected fourth quarter, but its outlook for 2023 really disappointed us and caused shares to dive. We have reduced our fair value estimate to $67 per share from $85 on the company's weak trends and lower-than-expected run rate on profits and cash flows in the intermediate term. Considering the higher uncertainty around intermediate term cash flows—and consistent with our new uncertainty methodology—we are also increasing our uncertainty rating to High from Medium previously. Finally, we are reducing our capital allocation rating to Standard from Exemplary primarily based on management's weak execution in the face of ongoing challenges, which appears to be the main cause of the disappointing outlook for 2023.