This Turnaround Stock Is Up and Still 38% Undervalued

Baxter International’s stock has badly lagged the market in the past few years, weighed down by weak medical utilization trends, tariff worries, a dividend cut, and poor capital allocation decisions. But the stock’s performance is looking up in 2026, as new management’s turnaround plans are enjoying some early success. There may be more volatility in Baxter’s intermediate-term trajectory, but with the stock trading 38% below our $40 fair value estimate, we think it is a compelling turnaround play. Baxter was one of Morningstar Chief US Market Strategist Dave Sekera’s stock picks on a recent episode of The Morning Filter podcast, 3 Stocks to Sell and 3 Stocks to Buy for September.

Baxter is a top-tier medical supplier and capital equipment maker after spinning off its renal care business in early 2025. Its financial results fell substantially in 2022-23 due to external pressures, including inflation and weak medical utilization trends just after making the large Hillrom acquisition. However, with elevated medical utilization, easing supply chain pressures, and new contracts with group purchasing organizations coming online since then, Baxter’s profits should be in turnaround mode.

Key Morningstar Metrics for Baxter

• Fair Value Estimate
  : $40
• Star Rating
  : 4 Stars
• Economic Moat Rating
  : Narrow
• Uncertainty Rating
  : High

Economic Moat Rating

We believe Baxter has dug a narrow economic moat around providing essential medical supplies and capital equipment to caregivers. It claims top-tier positions in most of its product lines and typically competes against a concentrated group of peers. We think it would be difficult for new companies to enter Baxter’s targeted niches primarily because of the intangible assets surrounding its proprietary products and the switching costs associated with some of them, both of which form the basis of a narrow moat.

Read more about Baxter’s moat rating.

Fair Value Estimate for Baxter Stock

Our fair value estimate is $40 per share. We anticipate that revenue could grow 3% compounded annually through 2030. We expect adjusted earnings per share to grow 8% compounded annually through 2030, primarily on margin expansion under the new CEO, who aims to instill a continuous improvement culture in Baxter’s operations. We assume that free cash flows can reach levels roughly equivalent to adjusted net income as the company controls its working capital better. Share repurchases account for about 100 basis points of our adjusted EPS growth expectation through 2030.

Read more about Baxter’s fair value estimate.

Risk and Uncertainty

While a new management team takes hold, uncertainty looks inflated relative to what we would otherwise expect in Baxter’s operations. An expected decline in the US insured rate, increasing supply costs, and infusion pump woes continue to cut into Baxter’s near-term outlook. The Hillrom acquisition has put some pressure on Baxter’s returns on invested capital and added leverage, which contributes to the elevated risk profile. We see risks in Baxter’s product lines, particularly those that face significant quality-control issues. New competitors could add to pricing pressures, and care provider budgets may be tested in the next few years.

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 through evolutionary innovation in 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 is striving toward higher margins, which may help earnings grow faster than sales in the long run, especially if the new CEO introduces ways to continuously improve Baxter’s operations.

Baxter Bears Say

• Although Baxter’s products are essential for medical care and patient health, group purchasing organization contract negotiations can limit pricing power and flexibility.
• With the 2021 Hillrom deal, the previous management team added uncertainty to Baxter’s prospects for return on invested capital and reduced balance-sheet flexibility, a problem that persists.
• Baxter’s reputation as a reliable supplier of injectable therapies (and its market share) fell after hurricanes struck manufacturing facilities in 2017 and 2024. The company 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 Sept. 8, 2026, close unless otherwise noted.