Baxter International, a leading manufacturer and supplier of essential hospital products, is currently trading near a two-decade low due to temporary headwinds that mask its earnings potential. Despite facing severe margin pressure and investor skepticism, we believe these challenges are transitory. The company has a strong market position with a large installed base and a broad consumables portfolio, which supports pricing discipline and stable margins. As contract pricing dynamics improve and operational efficiencies are realized, we anticipate a recovery in earnings and investor confidence, positioning Baxter as a high-quality medtech franchise.

Baxter International Inc. was added to the Fund's portfolio due to its attractive coupon rate of 5.162% and a maturity date extending to 2051. The company is rated Baa3/BBB-, indicating a solid credit quality. The addition reflects our belief in the company's potential for stable returns in the long term, especially in the context of the current fixed income market dynamics. We see Baxter as a quality holding that aligns with our investment strategy focused on value and long-term growth.

In the second quarter, the Brandes Core Plus Fixed Income Fund added to its position in Baxter International, indicating a positive outlook on the company's performance. The Fund's investment in Baxter is supported by its solid credit rating of Baa3/BBB- and a favorable coupon rate of 5.162%, maturing in 2051. This addition reflects the manager's belief in Baxter's resilience and potential for growth within the health care sector, particularly as the economy shows signs of strength.

We initiated a position in Baxter during the quarter in the high teens. Baxter spun off its kidney care business as Vantive, closing the sale to Carlyle on January 31, 2025, for approximately $3.8 billion gross. The RemainCo is a focused hospital-products company generating roughly $11.2 billion in 2025 revenue across three segments. Baxter trades near 11x forward earnings on what we believe are well below normalized levels. New CEO Andrew Hider is introducing a lean-manufacturing operating system called 'Baxter GPS.' We expect an investor day or capital-markets event within 12 months to formalize a 100–200 bp margin-expansion roadmap.

Shares of Baxter gained 18% in the first quarter, as the company delivered strong results, with numbers moving higher despite tariff disruptions. We thought Baxter took a big step toward rebuilding confidence, with improved execution and visibility into the balance of the year. Management expects operational sales growth of 4% to 5% this year, which appears reasonable to us. The bigger question, which will require a few more quarters of execution, is if 4% or 5% is sustainable long-term. At 12x earnings, or just over half of the market’s multiple, the consensus is taking the under. We are happy to take the other side of this one.

Baxter rallied on strong earnings, driven by solid underlying margin progression and robust organic growth from new product innovation. The company’s IV solutions business showed resilience, indicating a strong operational performance amidst broader market uncertainties. This positions Baxter favorably as it continues to innovate and expand its offerings, making it an attractive investment within the health care sector.

Baxter International is mentioned as a holding in the fund's portfolio, contributing positively to relative performance. However, there is no explicit directional argument made about its future prospects or valuation.