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Baxter International (BAX - Analyst Report) is slated to report second-quarter 2012 results on Thursday, July 19. The current Zacks Consensus Estimate for the quarter is $1.11, representing an estimated 3.93% annualized increase.

First Quarter Recap

Baxter reported first quarter adjusted (excluding one-time items) earnings per share of $1.01, beating the Zacks Consensus Estimate of 99 cents, and surpassing the year-ago earnings of 98 cents. Reported net income increased to $588 million (or $1.04 per share) from $570 million (or 98 cents a share) a year ago.

Total revenues were $3,388 million, up 3% year over year, beating the Zacks Consensus Estimate of $3,302 million. U.S. revenues for the quarter inched up 3% to $1,468 million while ex-U.S. sales were higher 3% (up 5% in constant currency) to $1,920 million.

The Plasma Proteins business, where Baxter had encountered structural problems in the past, did better in the reported quarter with revenues of $316 million, up 3% (up 4% in constant currency) year over year. Antibody Therapy delivered good results with sales of $388 million, climbing 4% (up 5% in constant currency) year over year.

Estimate Revision Trend

Agreement

Of the 15 analysts covering the stock, only 1 changed his/her estimate (in the downward direction), for the current quarter, over the prior week and past month. For 2012, out of 18 analysts, only 2 changed his/her estimate (in the downward direction) over the past week with 5 revisions (in the downward direction) over the past month. The current Zacks Consensus Estimate for 2012 is $4.53, reflecting an estimated 5.16% year-over-year increase.   

Magnitude

The magnitude of revisions, for the forthcoming quarter, has hit a plateau over the last week and month. The estimate for fiscal 2012 has moved down by only a penny over the prior week and past month.

Baxter has produced positive surprises in three of the previous four quarters and we expect a similar trend may continue. The company produced an average earnings surprise of 2.62% over the prior four quarters, meaning that it beat the Zacks Consensus Estimate by that measure.

Our Take

The news regarding Baxter still 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. Among other positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.

On June 25, 2012, Baxter reported that the Food and Drug Administration (“FDA”) approved Gammagard Liquid 10% -- Immune Globulin Infusion (Human) -- as a therapy option for multifocal motor neuropathy (“MMN”). This treatment had received a regulatory nod in Europe in 2011. It is the first immunoglobulin therapy for MMN patients in the U.S. for which Baxter has received Orphan Drug Designation. Gammagard Liquid is called Kiovig outside North America. 

Baxter, in November 2011, completed its acquisition of Baxa Corporation. The takeover highlights the company’s continued commitment toward patient safety and nutrition. It also permits Baxter to provide a wider set of solutions for the safe preparation and delivery of IV medication. Baxa’s know-how will benefit patients across the globe.

Moreover, Baxter struck a deal, in December 2011, to buy Synovis Life Technologies, a well-known provider of mechanical and biological products for the repair of soft tissue utilized in a large number of surgical operations. The acquisition will further expand Baxter’s offerings in the area of biosurgery and regenerative treatment. 

On the flip side, despite resilience in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about relative stagnation in sales, a slightly somber outlook for hospital spending and tightening of reimbursement. We also account for the unfavorable impact of foreign exchange translation and possible dilution associated with the company’s acquisitions of Baxa and Synovis.

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 with Becton, Dickinson and Company (BDX - Analyst Report) in certain niches. We currently have a Neutral long-term rating on Baxter. The stock currently retains a Zacks #3 Rank, which translates into a short-term “Hold” recommendation.

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