On Jan 28, we retained
) at Neutral after the company met Zacks Consensus Estimates for
earnings for the fourth quarter and for 2012.
Why the Retention?
Baxter's fourth quarter revenues rose 5% in constant currency
to $3,753 million and beat the Zacks Consensus Estimate of $3,714
million while earnings per share of $1.26 met the forecast. As in
the previous quarter, the company's in-line earnings failed to
provide an earnings surprise.
Baxter's outlook for 2013 was favorable. For 2013, Baxter
guided to reported sales growth of 10% in constant currency. The
company altered its expected adjusted earnings per share to the
range of $4.60 to $4.70 (earlier $4.51 to $4.54) for 2013. Baxter
expects cash flow from operations to approximate $3,300 million
Despite the favorable earnings guidance, estimates for Baxter
have been declining since it reported fourth quarter results on
Jan 24. The Zacks Consensus Estimate for 2013 has gone down
3.5% to $4.67 per share. The Zacks Consensus Estimate for 2014
has dropped marginally 0.8% to $5.27.
The news regarding Baxter still remains somewhat mixed. On the
positive side, Baxter's focus on life-sustaining products which
are not commoditized partly insulate 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.
The Gambro acquisition in December 2012 for about $4 billion,
strengthens the company's role in the hemodialysis market. It
will be able to serve both acute and chronic dialysis patients.
With the takeover, Baxter gains an established set of products
which strengthen its existing dialysis lineup. Baxter is expected
to benefit from the acquisition in several ways. It will be
better placed to push sales in European markets, where Gambro had
a strong presence. Baxter will also be in a stronger position to
grow revenues in the rapidly expanding Asian and Latin American
markets. Its pipeline has strengthened post acquisition. We are,
however, wary of short-term earnings dilution on account of the
On the flip side, despite resilience in certain sub-segments,
we are concerned about relative stagnation in sales, a slightly
somber outlook for hospital spending and tightening of
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
Becton, Dickinson and Company
) in certain niches.
Other Stocks to Consider
Baxter carries a Zacks Rank #4 (Sell) rating.
) are two Zacks Rank #1 (Buy) stocks which are expected to do
BAXTER INTL (BAX): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis
HAEMONETICS CP (HAE): Free Stock Analysis
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