Baxter (BAX)

Healthcare company Baxter International (NYSE:BAX) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 5% year on year to $2.84 billion. Next quarter’s revenue guidance of $2.81 billion underwhelmed, coming in 6.5% below analysts’ estimates. Its non-GAAP profit of $0.69 per share was 15.4% above analysts’ consensus estimates.

Company Overview

With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE:BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.

The medical devices industry operates a business model that balances steady demand with significant investments in innovation and regulatory compliance. The industry benefits from recurring revenue streams tied to consumables, maintenance services, and incremental upgrades to the latest technologies. However, the capital-intensive nature of product development, coupled with lengthy regulatory pathways and the need for clinical validation, can weigh on profitability and timelines. In addition, there are constant pricing pressures from healthcare systems and insurers maximizing cost efficiency. Over the next several years, one tailwind is demographic–aging populations means rising chronic disease rates that drive greater demand for medical interventions and monitoring solutions. Advances in digital health, such as remote patient monitoring and smart devices, are also expected to unlock new demand by shortening upgrade cycles. On the other hand, the industry faces headwinds from pricing and reimbursement pressures as healthcare providers increasingly adopt value-based care models. Additionally, the integration of cybersecurity for connected devices adds further risk and complexity for device manufacturers.

Baxter International competes with several major healthcare companies including Fresenius Medical Care (NYSE:FMS) in dialysis products, Becton Dickinson (NYSE:BDX) in IV solutions and infusion systems, Medtronic (NYSE:MDT) in patient monitoring, and B. Braun in IV and surgical products.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $11.02 billion in revenue over the past 12 months, Baxter has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Baxter struggled to consistently increase demand as its $11.02 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Baxter’s annualized revenue declines of 1.6% over the last two years align with its five-year trend, suggesting its demand has consistently shrunk.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 3.9% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Baxter.

This quarter, Baxter’s revenue grew by 5% year on year to $2.84 billion, missing Wall Street’s estimates. Company management is currently guiding for a 2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will fuel better top-line performance.

Baxter has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average adjusted operating margin of 15.9%.

Looking at the trend in its profitability, Baxter’s adjusted operating margin decreased by 3 percentage points over the last five years. Even though its historical margin was healthy, shareholders will want to see Baxter become more profitable in the future.

In Q3, Baxter generated an adjusted operating margin profit margin of 14.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Baxter, its EPS declined by 4.3% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

We can take a deeper look into Baxter’s earnings to better understand the drivers of its performance. As we mentioned earlier, Baxter’s adjusted operating margin was flat this quarter but declined by 3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Baxter reported adjusted EPS of $0.69, down from $0.80 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Baxter’s full-year EPS of $2.62 to shrink by 1.7%. This is unusual as its revenue and operating margin are anticipated to increase, signaling the fall likely stems from "below-the-line" items such as taxes.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Baxter has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.7% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that Baxter’s margin dropped by 9.8 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Baxter’s free cash flow clocked in at $126 million in Q3, equivalent to a 4.4% margin. The company’s cash profitability regressed as it was 4.1 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Baxter historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.8%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Baxter’s ROIC averaged 2.1 percentage point increases over the last few years. This is a good sign, and we hope the company can continue improving.

Baxter reported $1.71 billion of cash and $9.1 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.58 billion of EBITDA over the last 12 months, we view Baxter’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $154 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Baxter beat analysts’ EPS expectations this quarter. On the other hand, its full-year EPS guidance missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 13.5% to $19.39 immediately following the results.

Updated: December 4, 2025 at 10:45 PM EST

Before making an investment decision, investors should account for Baxter’s business fundamentals and valuation in addition to what happened in the latest quarter.

Baxter falls short of our quality standards. First off, its revenue growth was uninspiring over the last five years. And while its operating margins are in line with the overall healthcare sector, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Baxter’s P/E ratio based on the next 12 months is 8.6x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $23.80 on the company (compared to the current share price of $18.60).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.