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Will Core Renal Care Unit Fuel Baxter's (BAX) Q4 Earnings?

Zacks Equity Research

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

We expect the company to see steady growth on the back of strength in its core Renal Care segment. A strong earnings view for 2018 also buoys optimism.

Q3 Results at a Glance

In the last reported quarter, Baxter posted adjusted earnings per share of 80 cents, which surpassed the Zacks Consensus Estimate by 8.1% and improved from the year-ago quarter by 25%.

Revenues totaled $2.77 billion, which marginally missed the Zacks Consensus Estimate of $2.79 billion. Revenues improved 2.2% on a year-over-year basis and 3% at constant currency (cc).

Baxter has an average positive earnings surprise of 9.5% for the trailing four quarters.

Which Way Are Q4 Estimates Treading?

The Zacks Consensus Estimate for fourth-quarter earnings per share is pegged at 73 cents, showing a year-over-year increase of 14.1%.

The same for revenues is pinned at $2.80 billion, reflecting a rise of 1% year over year.

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

Baxter International Inc. Price and EPS Surprise

 

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

 

Renal Care in Focus

Baxter’s Renal Care segment, which offers improved dialysis solutions for patients, is expected to drive fourth-quarter results.

In the last reported quarter, revenues in the unit grossed $910 million, accounting for 32.9% of the quarterly sales.

It is encouraging to note that, the Zacks Consensus Estimate for the unit’s fourth-quarter revenues is pegged at $951 million, reflecting a sequential rise of 4.5%.

The Zacks Consensus Estimate for the segment’s U.S. revenues is pinned at $212 million, up 1.4% sequentially. Meanwhile, the same for the segment’s international sales stands at $728 million, mirroring a sequential rise of 3.9%.

In fact, last October, Baxter and Mayo Clinic inked a collaboration agreement to form an outpatient clinic for chronic kidney disease management. (Read More: Baxter Collaborates With Mayo Clinic to Open Renal Care Center)

Additionally, management expects Renal Care to see revenue growth of 3-4% in 2018.

Other Factors at Play

View Impressive

For the quarter to be reported, Baxter expects adjusted earnings per share within 71-73 cents.

Clinical Nutrition & Advanced Surgery Likely to Drive Q4

Baxter’s Clinical Nutrition and Advanced Surgery segments form a major part of the company’s business.

In the last reported quarter, Clinical Nutrition revenues totaled $218 million, contributing 7.9% to quarterly sales, while Advanced Surgery sales were $200 million, accounting for 7.2%.

It is encouraging to note that, the Zacks Consensus Estimate for the Clinical Nutrition’s fourth-quarter sales stands at $223 million, while the same for Advanced Surgery is pinned at $202 million. For Advanced Surgery, Baxter estimates revenue growth of 10% at constant currency.

Additionally, these segments have seen developments in recent times.

For instance, last October, Baxter and the American Society for Parenteral and Enteral Nutrition (ASPEN) launched an educational video series on the appropriate use of parenteral nutrition (PN). (Read More: Baxter & ASPEN Launch PN Tools to Boost Clinical Nutrition)

Last November, Baxter unveiled Peri-Strips Dry stapler and Tisseel Prima syringe at the 2018 American Society for Metabolic and Bariatric Society Obesity Week meeting. (Read More: Baxter Launches Peri-Strips & Tisseel Prima, Shares Up)

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 exactly the case here.

Earnings ESP: Baxter has an Earnings ESP of +1.83%. 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 #3.

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.

Intuitive Surgical ISRG has an Earnings ESP of +2.63% and a Zacks Rank #2.

PerkinElmer PKI has an Earnings ESP of +0.77% and a Zacks Rank #3.

DexCom DXCM has an Earnings ESP of +8.93% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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