Can Medication Delivery Unit Aid Baxter's (BAX) Q3 Earnings?

Baxter International Inc.BAX is scheduled to report third-quarter 2018 earnings on Oct 31, before the market opens.

We expect the company to see steady growth on the back of strength in its core Medication Delivery segment. A raised 2018 outlook buoys optimism.

For investors' notice, Baxter currently reports through seven segments - Renal Care, Medication Delivery, Pharmaceuticals, Clinical Nutrition, Advanced Surgery, Acute Therapies and Other. The company used to earlier report through three major segments - Renal, Hospital Products and Other.

Q2 Results at a Glance

In the last reported quarter, Baxter posted adjusted earnings per share of 77 cents, which beat the Zacks Consensus Estimate by 8.5% and improved from the year-ago quarter's 63 cents.

Sales totaled $2.84 billion, in line with the Zacks Consensus Estimate. At constant currency (cc), revenues rose 5%.

Baxter has an average positive earnings surprise of 9.6% for the trailing four quarters.

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for third-quarter earnings per share is pegged at 74 cents, showing a year-over-year increase of 15.6%.

The same for revenues is pinned at $2.79 billion, reflecting a rise of 2.9% year over year.

Baxter International Inc. Price and EPS Surprise

Baxter International Inc. Price and EPS Surprise | Baxter International Inc. Quote

Let's see how things are shaping up before the earnings results.

Medication Delivery Likely to Drive Q3

Baxter's Medication Delivery business is a leading manufacturer of products used in the delivery of fluids and drugs to patients. The unit produces intravenous (IV) solutions and administration sets and syringes for injectable drugs.

In the last reported quarter, the segment contributed 24% to Baxter's net sales. Sales at the segment grossed $681 million, down 2% year over year at cc.

However, it is encouraging to note that for the quarter to be reported, the Zacks Consensus Estimate for the unit's revenues stands at $705 million, reflecting a sequential improvement of 3.5%.

The consensus estimate for the segment's U.S. revenues is pegged at $445 million, showing sequential growth of 4.5%. The same for the segment's international sales stands at $260 million, calling for sequential rise of 2%.

Other Factors at Play

Guidance Raised

For 2018, Baxter expects adjusted earnings within $2.94 to $3 per share. Notably, the Zacks Consensus Estimate for earnings is pegged at $2.98, within the guided range.

Revenues are expected to grow 6% on a year-over-year basis and 5% at cc. The Zacks Consensus Estimate for revenues stands at $11.20 billion.

For the third quarter of 2018, the company expects sales growth of approximately 3% year over year and 3-4% at cc. Earnings per share are expected between 72 cents and 74 cents.

Slew of Regulatory Approvals

In recent times, the Illinois-based MedTech giant witnessed a plethora of regulatory approvals.

In August, Baxter announced CE Mark for the Evo IQ Infusion System. Apart from the planned marketing of the device in the United Kingdom, Ireland and New Zealand, the system received regulatory approval from the Therapeutic Goods Administration (TGA) in Australia.

Last month, Baxter announced the FDA clearance of Actifuse Flow Bone Graft Substitute for use in a variety of orthopedic surgical procedures. (Read More: Baxter's Actifuse Flow Bone Graft Substitute Gets FDA Nod )

We believe such trends are likely to favor the company this season.

What Does Our Model Say?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the quarter. This is precisely the case here.

Earnings ESP: Baxter has an Earnings ESP of +0.90%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Baxter carries a Zacks Rank #2.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as they also have the right combination of elements to post an earnings beat this quarter.

McKesson Corporation MCK has an Earnings ESP of +0.17% and a Zacks Rank #3.

Becton, Dickinson and Company BDX has an Earnings ESP of +0.43% and a Zacks Rank #3.

Masimo Corporation MASI has an Earnings ESP of +0.98% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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