Baxter International Inc (BAX.N): A Sizeable Step Forward, Question on the 2H Margin Trajectory

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Baxter International Inc (BAX.N): A Sizeable Step Forward, Question on the 2H Margin Trajectory

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30 Jul 2026 17:01:40 ET │ 14 pages

Baxter International Inc (BAX.N)

A Sizeable Step Forward, Question on the 2H Margin Trajectory

CITI'S TAKE

While 2Q26 was not a complete 180̊, it was a strong step in the right

direction. Sales of $2.96B (up 5% y/y organic) surpassed V.A. consensus’s

~flat growth. Standouts include Advanced Surgery up 12% and CCS up 5%. Neutral / High Risk ↑ from Sell / High Risk

Gross margins contracted to 38.6% from 40.7% y/y (inclusive of a $75M Price (30 Jul 26 15:00) US$26.40

tariff benefit) and operating margins to 14.2% from 15.0%, with EPS of

$0.56 (down 5%, including $0.11 tariff benefit) surpassing consensus’s Target price US$28.00↑

$0.37. 2026 organic revenue growth guidance increased to 2-3% from ~0% from US$17.00

and EPS to $1.95-$2.15 from $1.85-$2.05 (above the Street’s $1.92), only Expected share price return 6.1%passing along the tariff benefit. While Baxter is more offensive, benefiting

from new products and supported by healthy end market demand, Expected dividend yield 3.5%

headwinds remain in pockets of the portfolio and margin trajectory is less Expected total return 9.5%

clear. Giving credit where credit is due, we are upgrading BAX to Market Cap US$13,635MNeutral/High Risk from Sell/High Risk, increasing the TP to $28 from $17.

There were puts and takes on margins, to say the least — An IEEPA tariff refund

contributed $75M gross margins or $0.11 to EPS in the quarter, which was not

Price Performancecontemplated in previous guidance. Excluding this benefit, gross margins would

have been 36.1% (versus 38.6% reported) and operating margins would have been (RIC: BAX.N, BB: BAX US)

250bps lower, or ~11.7% (versus 14.2% reported).