On Thursday, Goldman Sachs (NYSE:GS) initiated coverage of Baxter International (NYSE:BAX), assigning a Neutral rating to the healthcare company's shares with a price target of $36.00. The firm's analysis suggests that Baxter's operating performance is expected to improve in the coming months, with an acceleration of organic growth anticipated in the second half of 2024 and operating margins likely to show year-over-year increases.
The outlook for Baxter is seen as a balance between positive operating fundamentals and certain financial and strategic challenges. The company's high leverage ratio, recorded at 3.8 times net debt to LTM EBITDA as of the first quarter of 2024, is noted as a limiting factor for financial flexibility. Additionally, there is uncertainty surrounding the future of Baxter's Kidney Care business, with management potentially exploring options such as a spinoff or sale, as previously disclosed.
Goldman Sachs' stance on Baxter reflects a recognition that while underlying operations are solid, the path to margin expansion is not without obstacles. The firm anticipates that most of the expected improvements in margins will need to come from gross margins. This is a shift from the period between 2016 and 2019, where margin improvement was largely driven by discretionary expense management, a process that typically yields quicker results.
The analysis by Goldman Sachs indicates a measured approach to Baxter's stock, acknowledging the potential for operational improvements while also considering the financial constraints and strategic uncertainties the company faces. The price target of $36.00 is set in the context of these factors, providing a benchmark for the stock's performance as Baxter moves through 2024.
InvestingPro Insights
As Baxter International (NYSE:BAX) navigates through its financial and strategic challenges, InvestingPro data sheds light on key metrics that could influence investor sentiment. With a market capitalization of $16.91 billion and a P/E ratio of 6.37, Baxter's valuation seems reasonable in the healthcare equipment and supplies industry. Despite recent downward pressure, as the stock trades near its 52-week low, Baxter's commitment to shareholder returns is evident with a dividend yield of 3.5% and a history of raising dividends for 7 consecutive years.
InvestingPro Tips indicate that Baxter is a prominent player in its sector and has maintained dividend payments for an impressive 54 consecutive years. While analysts have revised their earnings expectations downwards for the upcoming period, the company is expected to return to profitability this year. These insights, coupled with the fact that Baxter's stock generally trades with low price volatility, might provide a level of reassurance to investors concerned about market fluctuations.
For those considering a deeper analysis, InvestingPro offers additional tips on Baxter, which can be viewed by visiting the dedicated page for Baxter on InvestingPro. To access these insights and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 11 more InvestingPro Tips available that could further inform investment decisions regarding Baxter International.
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