Earnings Preview: Baxter - Analyst Blog
July 20 2011 - 9:30AM
Zacks
Baxter
International (BAX) is slated to report its second-quarter
2011 results on Thursday, July 21. The current Zacks Consensus
Estimate for the quarter is $1.02, representing an estimated 9.74%
annualized increase.
First Quarter
Recap
Baxter reported first quarter
adjusted (excluding one-time items) earnings per share of 98 cents,
beating the Zacks Consensus Estimate of 93 cents, and surpassing
the year-ago results of 93 cents.
The company posted a net income of
$570 million (or 98 cents per share) versus a loss of $63 million
(or 11 cents a share) a year ago. First-quarter 2010 results
included after-tax items aggregating $627 million (or $1.04 per
share) arising from the Colleague infusion pump and a change in
certain tax treatment.
Revenues were $3,284 million, up
12% year over year, beating the Zacks Consensus Estimate of $3,178
million. Sales in the prior year included an adjustment of $213
million for the Colleague infusion pump. Excluding this adjustment,
worldwide sales grew 5% year over year. Domestic revenues for the
quarter jumped 10% to $1,422 million while overseas sales were
higher only 1% to $1,862 million.
The Plasma Proteins business, where
Baxter had encountered structural problems in the past, performed
well with revenues of $308 million, up 5% (up 8% in constant
currency) year over year. Antibody Therapy also delivered good
results with sales of $374 million, climbing 16% (up 18% in
constant currency) year over year.
Estimate Revision
Trend
Agreement
The overall trend in estimate
revisions for Baxter has seen almost no activity in the recent
past. Of the 17 analysts covering the stock, none changed their
estimates, for the current quarter, over the prior week and
month.
Estimates for 2011 have been flat
for the most part with no changes over the prior week and only one
downward revision over the past month. The current Zacks Consensus
Estimate for 2011 is $4.26, reflecting an estimated 6.92%
year-over-year increase.
Magnitude
Given the general lack of estimate
revisions, the magnitude of revisions, for both the forthcoming
quarter and fiscal year, has hit a plateau over the last week and
month.
Baxter has produced positive
surprises in the previous four quarters and we expect a similar
trend to continue. The company produced an average earnings
surprise of 2.88% over the prior four quarters, meaning that it
beat the Zacks Consensus Estimate by that measure.
Our Take
The news regarding Baxter 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.
On the flip side, despite recent
improvement in Plasma Proteins and Antibody Therapy sub-segments,
we are concerned about stagnation in sales, a slightly somber
outlook for some hospital spending and tightening of
reimbursement.
Improved execution has lifted
sentiment toward Baxter. Baxter is a good bet for value investors
willing to wait as fundamentals improve. Among others, it competes
with Becton, Dickinson and Company (BDX) and
Talecris Biotherapeutics Holdings Corp. (TLCR) in
certain niches. We currently have a long-term Neutral rating on
Baxter.
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