Baxter International
(
BAX
) is slated to report second-quarter 2012 results on Thursday, July
19. The current Zacks Consensus Estimate for the quarter is $1.11,
representing an estimated 3.93% annualized increase.
First Quarter Recap
Baxter reported first quarter adjusted (excluding one-time
items) earnings per share of $1.01, beating the Zacks Consensus
Estimate of 99 cents, and surpassing the year-ago earnings of 98
cents. Reported net income increased to $588 million (or $1.04 per
share) from $570 million (or 98 cents a share) a year ago.
Total revenues were $3,388 million, up 3% year over year,
beating the Zacks Consensus Estimate of $3,302 million. U.S.
revenues for the quarter inched up 3% to $1,468 million while
ex-U.S. sales were higher 3% (up 5% in constant currency) to $1,920
million.
The Plasma Proteins business, where Baxter had encountered
structural problems in the past, did better in the reported quarter
with revenues of $316 million, up 3% (up 4% in constant currency)
year over year. Antibody Therapy delivered good results with sales
of $388 million, climbing 4% (up 5% in constant currency) year over
year.
Estimate Revision Trend
Agreement
Of the 15 analysts covering the stock, only 1 changed his/her
estimate (in the downward direction), for the current quarter, over
the prior week and past month. For 2012, out of 18 analysts, only 2
changed his/her estimate (in the downward direction) over the past
week with 5 revisions (in the downward direction) over the past
month. The current Zacks Consensus Estimate for 2012 is $4.53,
reflecting an estimated 5.16% year-over-year
increase.
Magnitude
The magnitude of revisions, for the forthcoming quarter, has hit
a plateau over the last week and month. The estimate for fiscal
2012 has moved down by only a penny over the prior week and past
month.
Baxter has produced positive surprises in three of the previous
four quarters and we expect a similar trend may continue. The
company produced an average earnings surprise of 2.62% over the
prior four quarters, meaning that it beat the Zacks Consensus
Estimate by that measure.
Our Take
The news regarding Baxter still remains mixed. On the positive
side, Baxter's focus on life-sustaining products, which are not
commoditized, partly insulates it from an economic downturn. The
company is able to generate recurring revenues, and consistent cash
flow, due to its focus on chronic diseases. Among other positive
factors, Baxter retains a strong product pipeline with several
products in late-stage clinical development.
On June 25, 2012, Baxter reported that the Food and Drug
Administration ("FDA") approved Gammagard Liquid 10% -- Immune
Globulin Infusion (Human) -- as a therapy option for multifocal
motor neuropathy ("MMN"). This treatment had received a regulatory
nod in Europe in 2011. It is the first immunoglobulin therapy for
MMN patients in the U.S. for which Baxter has received Orphan Drug
Designation. Gammagard Liquid is called Kiovig outside North
America.
Baxter, in November 2011, completed its acquisition of Baxa
Corporation. The takeover highlights the company's continued
commitment toward patient safety and nutrition. It also permits
Baxter to provide a wider set of solutions for the safe preparation
and delivery of IV medication. Baxa's know-how will benefit
patients across the globe.
Moreover, Baxter struck a deal, in December 2011, to buy Synovis
Life Technologies, a well-known provider of mechanical and
biological products for the repair of soft tissue utilized in a
large number of surgical operations. The acquisition will further
expand Baxter's offerings in the area of biosurgery and
regenerative treatment.
On the flip side, despite resilience in Plasma Proteins and
Antibody Therapy sub-segments, we are concerned about relative
stagnation in sales, a slightly somber outlook for hospital
spending and tightening of reimbursement. We also account for the
unfavorable impact of foreign exchange translation and possible
dilution associated with the company's acquisitions of Baxa and
Synovis.
Improved execution has lifted sentiment somewhat toward Baxter.
It is a good bet for value investors willing to wait as
fundamentals improve further. Among others, the company competes
with
Becton, Dickinson and Company
(
BDX
) in certain niches. We currently have a Neutral long-term rating
on Baxter. The stock currently retains a Zacks #3 Rank, which
translates into a short-term "Hold" recommendation.
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