The Second Stock That Could Go Bankrupt in 2024

When investors think of the safest, steadiest companies in the world, their list often includes industries like consumer staples, utilities, and health care.

These businesses have some of the most stable cash flows out there. They don't have a lot of exposure to economic cycles. After all, consumers need food, electricity, and health care in good times or bad...

A funny thing has happened to those industries over the past 15 years, though.

Investors and management teams started to embrace how "safe" they are. And interest rates stayed low for far longer than anyone expected through the 2010s.

So these safe companies started to think they could layer debt on top of those cash flows... They thought there was no way cash flows could ever dip.

And if interest rates stayed low, that meant companies could lever up, make acquisitions, and buy back shares to reward equity holders.

That's how Baxter International (BAX) got in trouble.

As one of the world's largest health care equipment providers, Baxter International is likely one of the last companies you'd expect us to have on our radar. It probably won't go into a tailspin because of rising interest expenses.

And yet, it's struggling with debt. At the end of the third quarter, the company had more than $5.3 billion in debt coming due by the end of 2024... and not enough cash to pay it off.

It sold its biopharma solutions business out of desperation, just to raise some money. And even after that, it's going to be about $1.6 billion short.

Baxter just gutted its own business. It's still going to have to refinance the rest of its near-term debt... likely in the next five to seven years.

The company has three bonds maturing in that time frame, with an average yield of 5.8%. Those aren't nosebleed levels. It does mean a $93 million jump in interest expenses, though.

To put that $93 million into perspective, Baxter is forecast to generate $474 million in net income in 2023. Even factoring in the tax shield it will get for the higher debt, profits would drop by roughly 20%.

It's hard to imagine a company of this scale telling investors that earnings will drop more than 20% going forward. That could be what Baxter has to do soon.

And even before all that bad news comes up, Baxter's performance and the overall business are triggering red flags in our system. Its credit rating sits deep in high-risk territory, warning investors of its credit risk.

Baxter is on shaky ground. That's reason enough not to own the stock.

Regards,

Joel Litman and Rob Spivey
December 2, 2023