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We reiterate our Neutral recommendation on Baxter International (BAX - Analyst Report). The company reported third quarter adjusted (excluding one-time items) earnings per share of $1.14, in line with the Zacks Consensus Estimate and surpassing the year-ago earnings of $1.09 per share.

Reported profit in the quarter inched up 1% year over year to $583 million (or $1.06 per share). Baxter’s results in the reported quarter includes a post-tax research and development charge of about $45 million (or 8 cents per share) related to Oncova Therapeutics licensing agreement in Europe.

Revenues were flat on a year-over-year basis (up 5% in constant currency) at $3,477 million. Baxter’s third quarter revenues were below the Zacks Consensus Estimate of $3,516 million.

On a geographic basis, U.S.-based revenues in the quarter improved 8% year over year to $1,513 million while international revenues declined 5% year over year (up 2% in constant currency) to $1,964 million.

On a segment-wise basis, Bioscience revenues stood at $1,522 million, flat year-over-year (up 5% in constant currency). Revenues from Medical Products remained flat year over year (up 4% in constant currency) at $1,955 million.

The news regarding Baxter still remains somewhat mixed. On the positive side, Baxter’s focus on life-sustaining products which are not commoditized, partly insulate 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 the flip side, despite resilience in certain sub-segments, we are concerned about relative stagnation in sales, a slightly somber outlook for hospital spending and tightening of reimbursement.

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.

The stock carries a Zacks #4 Rank, which translates into a short-term Sell rating.

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