Baxter International Inc.BAXNYSE

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DCF Valuation

⚠️Model Warnings

•Terminal value represents 88% of enterprise value. Valuation highly sensitive to long-term assumptions.

DCF Valuation Summary

Strong Buy

Fair Value: $90.67 per share(market-calibrated)

+375.9%

Upside to Fair Value

Current

$19.06

Pure Model

$105.88

Fair Value

$90.67

Bull Case

$128.27

Bear Case

$90.06

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $105.88.

What's Driving This Ratingfor BAX

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.88% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$203M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is -2.17% — below the sector mature average of 20.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.3B (15.35% margin).

→

Moderate revenue growth

Analyst consensus projects 1.00% revenue growth, fading to 3.00% by Year 10. Revenue reaches $14.7B (vs $11.2B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 68.82% indicates efficient cash generation. FCF reaches $2.4B by Year 10 (16.56% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.58

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.13%

Cost of Debt

Pre-tax Cost of Debt3.65%

Tax Rate21.00%

After-tax Cost of Debt2.88%

Equity Weight (E/V)49.42%

Debt Weight (D/V)50.58%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (49.42% × 7.13%) + (50.58% × 2.88%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$11.4B	$12.0B	$12.7B	$13.5B	$14.7B
EBIT	-$246M	-$259M	$737M	$1.5B	$2.3B
Tax	-$52M	-$54M	$155M	$309M	$474M
NOPAT	-$195M	-$205M	$582M	$1.2B	$1.8B
+ Depreciation	$990M	$1.0B	$1.1B	$1.2B	$1.3B
- Capex	$554M	$547M	$541M	$533M	$515M
- Δ NWC	$30M	$87M	$99M	$105M	$115M
Free Cash Flow	$211M	$203M	$1.0B	$1.7B	$2.4B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$200M	$173M	$802M	$1.2B	$1.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.4B

Terminal Growth Rate3.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$100.3B

PV of Terminal Value$58.7B

Exit Multiple Method

Year 10 EBITDA$3.5B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$84.9B

PV of Terminal Value$49.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$8.1B

PV of Terminal Value$58.7B

Enterprise Value$66.9B

(-) Net Debt$8.0B

Equity Value$58.8B

Shares Outstanding513M

Price per Share$114.67

Exit Multiple Method

PV of Projected FCFs$8.1B

PV of Terminal Value$49.7B

Enterprise Value$57.8B

(-) Net Debt$8.0B

Equity Value$49.8B

Shares Outstanding513M

Price per Share$97.09

Pure Model Fair Value

$105.88

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.50%	$139.59	$132.92	$126.58	$120.54	$114.78
4.50%	$116.95	$132.92	$126.58	$120.54	$114.78
5.50%	$89.12	$96.10	$105.88	$120.54	$114.78
6.50%	$71.89	$75.63	$80.44	$86.86	$95.83
7.50%	$59.71	$61.96	$64.71	$68.15	$72.57

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$90.06

372.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.73

Base Case

$105.88

455.6% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.58

Bull Case

$128.27

573.2% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.50

Key Assumptions & Drivers• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth1.00%

Year 3 Revenue Growth2.80%

Year 5 Revenue Growth3.00%

Year 7 Revenue Growth3.00%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin-2.17%

Terminal EBIT Margin20.00%

Tax Rate21.00%

Historical Capex / Rev4.88%

Terminal Capex / Rev3.50%

NWC / Revenue26.81%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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