Baxter International Stock Dropped 20% – Have You Assessed the Risk

Baxter International (BAX) stock is down 19.9% in 5 trading days. While history suggests price dips recover, there is risk – specific to growth, profitability and balance sheet. Consider the following data:

• Size: Baxter International is a $9.2 Bil company with $11 Bil in revenue currently trading at $17.95.
• Fundamentals: Last 12 month revenue growth of 3.9% and operating margin of 3.7%.
• Liquidity: Has Debt to Equity ratio of 1.05 and Cash to Assets ratio of 0.08
• Valuation: Baxter International stock is currently trading at P/E multiple of -27.1 and P/EBIT multiple of 180.9
• Has one instance since 2010 where it dipped >30% in < 30 days and subsequently returned 44.1% within a year. See BAX Dip Buy Analysis.

While we like to buy dips if the fundamentals check out – for BAX, see Buy or Sell BAX Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and BAX drops another 20-30% to $13 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience. Turns out, the stock saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

A single stock can be risky, but there is a huge value to a broader, diversified approach. Should you buy one stock you like or build a portfolio designed to win across cycles? Our numbers show that the Trefis High Quality Portfolio has turned stock-picking uncertainty into market-beating consistency. This portfolio is incorporated in the asset allocation strategy of Empirical Asset Management — a Boston area wealth manager and Trefis partner — whose asset allocation framework yielded positive returns during the 2008-09 period when the S&P lost more than 40%.

Below are the details, but before that, as a quick background: BAX provides a global portfolio of healthcare products, distributing through direct sales, independent distributors, drug wholesalers, and specialty pharmacies across approximately 100 countries.

2022 Inflation Shock

• BAX stock fell 64.6% from a high of $89.45 on 9 February 2022 to $31.71 on 12 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $43.77 on 10 March 2024 , and currently trades at $17.95

 
2020 Covid Pandemic

• BAX stock fell 23.3% from a high of $93.30 on 6 February 2020 to $71.57 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 20 April 2020

 
2018 Correction

• BAX stock fell 20.9% from a high of $77.80 on 1 October 2018 to $61.56 on 12 November 2018 vs. a peak-to-trough decline of 19.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 21 March 2019

 
2008 Global Financial Crisis

• BAX stock fell 34.8% from a high of $38.69 on 8 August 2008 to $25.24 on 10 June 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 26 March 2013

 
It is a good thing to keep in mind how low BAX could go during a downturn. And you should also check how the stock fared when compared with the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 — the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.