On Aug 21, we maintained our Neutral recommendation on Baxter International Inc. (BAX). We are encouraged by the company’s second quarter earnings that beat both the Zacks Consensus Estimate and its own guidance. However, we are disappointed with its modest rise in revenues, which also missed the Zacks Consensus Estimate.
Baxter International reported second-quarter adjusted (excluding one-time items) earnings per share of $1.16, which beat the Zacks Consensus Estimate by 3 cents and surpassed the year-ago earnings by 4%. The second-quarter result also exceeded the company’s earlier stated guidance of $1.12–$1.14.
Revenues for the quarter went up a tad 3% (up 4% at constant exchange rate or CER) to $3,669 million, missing the Zacks Consensus Estimate of $3,707 million. On a geographic basis, U.S.-based revenues in the quarter improved 3%, while international revenues rose 3% (up 4% at CER).
Following the release of second quarter results, the Zacks Consensus Estimate for 2013 went up by a penny to $4.67 per share. The Zacks Consensus Estimate for 2013 went down by a penny to $5.15. With the Zacks Consensus Estimates for both 2012 and 2013 remaining almost flat, the company now has a Zacks #3 Rank (Hold).
Baxter’s product pipeline is expected to be an important driver of sales growth in future, but will probably not bolster the top line significantly in the near term. Nevertheless, with the Gambro acquisition, Baxter gains an established set of products, which strengthen its existing line of dialysis products.
However, Baxter depends on the EU for about a third of its sales. This is a cause for concern given recent fiscal tightening, a glum outlook for hospital spending and tightening of reimbursement. It also faces pricing pressure due to the advent of group purchasing organizations (GPOs) in the U.S.
Other Stocks to Look For
Most of the top peers of BAX are currently performing well. They include Alere Inc. (ALR) and PLC Systems Inc. (PLCSF), both with a Zacks Rank #1 (Strong Buy), and Advaxis Inc. (ADXS) with a Zacks Rank #2 (Buy).
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