This Ultracheap Stock to Buy Is a Compelling Value Investment

Looming tariffs plus a CEO transition equals high uncertainty around Baxter International today. Yet given the deep discount at which the shares trade, we think this cheap stock is an attractive value investment. Management expects to generate mid-single-digit revenue growth and $2.45-$2.55 of adjusted earnings per share in 2025. This narrow-moat company is among Morningstar analysts’ top 33 Undervalued Stocks for the second quarter. It’s also one of chief US market strategist Dave Sekera’s 3 Long-Term Stocks to Buy That We Still Believe In.

Baxter is a top-tier medical supplier and capital equipment maker. Its financial results fell substantially in 2022-23 on external pressures like inflation and weak medical utilization trends. With medical utilization rising, supply chain pressures easing, and new contracts with group purchasing organizations coming up, Baxter’s profits looked set for a turnaround until new US tariffs cast uncertainty on those prospects. The company looks likely to walk back its previously announced 2025 guidance because of these new tariffs, although it aims to find some offsets to these pressures. Also, with only an interim CEO after Joe Almeida’s sudden departure, investors may have to wait for a new permanent leader before a long-term strategic vision emerges.

Key Morningstar Metrics for Baxter

• Fair Value Estimate: $55
• Star Rating: 4 Stars
• Economic Moat Rating: Narrow
• Uncertainty Rating: High

Economic Moat Rating

Baxter has dug a narrow moat around providing essential medical supplies and capital equipment. It claims top-tier positions in most of its product lines and typically competes with a concentrated group of peers. We think it would be difficult for new firms to successfully enter Baxter’s targeted niches primarily because of the intangible assets surrounding its proprietary products and the switching costs associated with some of them. Because of those factors, we see a relatively long runway for the company to generate economic profits with its existing technology and pipeline of new products. We expect Baxter will be able to increase and keep its return on invested capital moderately above its weighted average cost of capital, although new tariffs create another near-term hurdle.

Read more about Baxter’s moat rating.

Fair Value Estimate for Baxter Stock

Our $55 fair value estimate incorporates the negative effects that new tariffs could have on Baxter’s near-term profits. Our discounted cash flow analysis incorporates a tough 2025 period that includes the divestiture of the renal care division and the effects of new tariffs in the remaining businesses, which could cut into Baxter’s profit prospects materially. Beyond 2025, we anticipate that Baxter’s revenue growth could rebound to the midsingle digits, or roughly in line with its end markets. Also, we suspect Baxter will have some room to improve its profit margins. In the long run, we expect mid-single-digit revenue growth, mild operating margin expansion, and share repurchases to push up Baxter’s annualized adjusted earnings per share growth to the low double digits.

Read more about Baxter’s fair value estimate.

Risk and Uncertainty

Our uncertainty rating reflects management’s weak execution when faced with external pressures that materially cut into profits in 2022-23 and look likely to continue in 2025 as new tariffs could inflate supply chain costs. We also see risks in Baxter’s product lines, particularly IV solutions, nutritional products, and generic injectables that face significant quality-control issues that contribute to the firm’s environmental, social, and governance risks. If new competitors decide to make the substantial investments needed to participate in these markets, we think pricing pressures may accelerate, especially in an increasingly cost-conscious healthcare system. We also believe Baxter must innovate to maintain its competitive advantages in some of its end markets.

Read more about Baxter’s risk and uncertainty.

Baxter Bulls Say

• In the long run, Baxter should continue to grow at a decent clip, primarily around evolutionary innovation in all of its major business lines and moderate pricing or mix improvements.
• Emerging markets are a prime source of growth for many of Baxter’s products, including nutritional solutions.
• The company continues to strive toward higher margins, which may help earnings grow faster than sales, eventually.

Baxter Bears Say

• Although Baxter’s products are essential for medical care and patient health, group purchasing organization contract negotiations can limit pricing power.
• With the Hillrom deal, Baxter added uncertainty to its ROIC prospects and reduced its balance sheet flexibility, which is still a problem for the company.
• Baxter’s reputation as a reliable supplier of injectable therapies and related market share fell after hurricanes in 2017 and 2024. The firm needs to guard against further problems in this area to maintain customer confidence.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of April 2, 2025.