) is slated to report third-quarter 2012 results on Thursday,
October 18. The current Zacks Consensus Estimate for the quarter is
$1.14, representing an estimated 4.2% annualized increase.
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Second Quarter Recap
Baxter reported second quarter adjusted (excluding one-time items
other than stock based compensation expense) earnings per share of
$1.12, beating the Zacks Consensus Estimate of $1.11, and
surpassing the year-ago earnings of $1.07. Reported net income
increased to $661 million (or $1.19 per share), up about 7% year
Revenues were $3,572 million, up 1% year over year, beating the
Zacks Consensus Estimate of $3,538 million. U.S. revenues for the
quarter moved up 6% to $1,503 million while ex-U.S. sales dropped
2% (up 3% in constant currency) to $2,069 million.
The Plasma Proteins business, where Baxter had encountered
structural problems in the past, did better in the reported quarter
with revenues of $364 million, flat (up 4% in constant currency)
Estimate Revision Trend
Of the 17 analysts covering the stock, only one changed his/her
estimate (in the upward direction), for the current quarter, over
the past month. There were no changes in the prior week.
For 2012, out of 19 analysts, only one analyst changed his/her
estimate (in the upward direction) over the past month. There were
no revisions over the past week. The current Zacks Consensus
Estimate for 2012 is $4.53, reflecting an estimated 5.2% year over
The magnitude of revisions, for the forthcoming quarter, has hit a
plateau over the last week and month. The estimate for 2012 has
also not moved over the prior week and 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 1.28% over the
prior four quarters, meaning that it beat the Zacks Consensus
Estimate by that measure.
The news regarding Baxter still remains somewhat 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.
During the third quarter, Baxter announced a quarterly dividend of
45 cents per share. The new dividend constitutes a yearly dividend
of $1.80 per share, up over 34% from the prior annual dividend of
$1.34. Baxter also announced a fresh share buyback authorization of
up to $2 billion of its common stock.
Baxter enjoys robust cash flow and it has returned notable funds to
shareholders by way of share repurchases and dividends. The company
has generated average annual cash flow of $2.7 billion in the past
five years. It has returned over $11.4 billion in aggregate to its
stockholders by way of share repurchases and dividends.
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.
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
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
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
) in certain niches. We currently have a Neutral long-term
recommendation on Baxter. The stock currently retains a Zacks #3
Rank, which translates into a short-term Hold rating.