When Baxter International Inc (NYSE:BAX) released its most recent earnings update (31 December 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Baxter International performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see BAX has performed. View our latest analysis for Baxter International
Despite a decline, did BAX underperform the long-term trend and the industry?
For the purpose of this commentary, I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method allows me to examine various companies in a uniform manner using new information. For Baxter International, its most recent bottom-line (trailing twelve month) is US$724.00M, which, against the prior year’s figure, has plunged by a non-trivial -85.42%. Since these values are fairly short-term, I’ve determined an annualized five-year figure for BAX’s net income, which stands at US$1.89B This doesn’t seem to paint a better picture, as earnings seem to have consistently been falling over the longer term.
What could be happening here? Well, let’s take a look at what’s occurring with margins and if the entire industry is experiencing the hit as well. In the past couple of years, Baxter International has, on average, delivered negative top- and bottom-line growth. As revenues fell by more, expenses have been lowered in order to sustain margins – not the most sustainable operating activity. Inspecting growth from a sector-level, the US medical equipment industry has been growing its average earnings by double-digit 10.69% in the previous twelve months, and a more muted 9.16% over the past half a decade. This shows that whatever uplift the industry is profiting from, Baxter International has not been able to leverage it as much as its industry peers.
What does this mean?
Baxter International’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that experience a drawn out period of decline in earnings are going through some sort of reinvestment phase in order to keep up with the recent industry growth and disruption. I recommend you continue to research Baxter International to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for BAX’s future growth? Take a look at our free research report of analyst consensus for BAX’s outlook.
- 2. Financial Health: Is BAX’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.