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Baxter International (BAX) Up 3.5% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Baxter International Inc. (BAX - Free Report) . Shares have added about 3.5% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is BAX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Baxter International reported first-quarter 2018 adjusted earnings per share of 70 cents, which beat the Zacks Consensus Estimate by 12.9% and improved from the year-ago quarter’s 58 cents.

The figure surpassed the company’s guidance of 60-62 cents. In the last four quarters, the company delivered positive earnings surprises, the average being 10.3%.

Baxter posted sales of $2.68 billion, edging past the Zacks Consensus Estimate of $2.62 billion. At cc, revenues rose 4% on a year-over-year basis.

Baxter has a Zacks Rank #2 (Buy). The company has outperformed its industry in a year's time. Baxter’s shares have returned 24.7%, higher than the industry’s gain of roughly 14.7%.

Geographical Details

Baxter reports operating results through three geographic segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific).

As a whole, U.S. sales rose 2% year over year to $1.1 billion on an operational basis. International sales increased 3% to almost $1.5 billion on an operational basis. Strong demand for the company’s continuous renal replacement therapies (“CRRT”), injectable pharmaceuticals, advanced surgery products, U.S. IV solutions and peritoneal dialysis therapies boosted sales worldwide.

In Americas, Baxter reported sales of $1.44 billion, up 4% at cc on a year-over-year basis.

In EMEA, sales grossed $724 million, up 3% at cc on a year-over-year basis.

In APAC, Baxter reported sales of $511 million, up 3% at cc on a year-over-year basis.

Segmental Details

Renal Products

Sales in the segment increased 4% at cc to $868 million on a year-over-year basis.

Renal products sales were supported by improved performance in all major product lines and therapies, globally. Notably, solid performance in chronic and acute renal therapies drove sales in the segment.

Medication Delivery

Sales at the segment were $676 million, flat year over year at cc.

Notably, the segment includes the company’s IV therapies, infusion pumps, administration sets and drug reconstitution devices.

Pharmaceuticals

Sales in the segment were $496 million, up 13% year over year at cc.

Notably, Pharmaceuticals includes the company’s premixed and oncology drug platforms, inhaled anesthesia as well as critical care products and pharmacy compounding services.

Nutrition

Sales in the segment were $223 million, flat year over year at cc. Notably, the segment includes sales of parenteral nutrition (PN) therapies.

Advanced Surgery

Sales in the segment totaled $182 million, up 4% year over year at cc.

The segment covers the company’s biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

In March, Baxter completed the acquisition of two hemostat and sealant products from Mallinckrodt plc to expand its existing surgical portfolio, especially for intraoperative bleeding. Notably, the company bought RECOTHROM Thrombin topical and PREVELEAK Surgical Sealant product lines from Mallinckrodt.

Notably, these developments were not accretive to first-quarter 2018 adjusted earnings. However, Baxter expects the deal to be modestly accretive to 2018 adjusted earnings.

Acute Therapies

Sales in the segment were $129 million, up 14% year over year at cc.

Sales of the CRRT and other organ support therapies focused in the ICU boosted segmental revenues in the quarter under review.

Other

Sales in the segment totaled $103 million, down 12% year over year at cc.
Baxter’s pharmaceutical partnering business is included under the segment.

Margin Analysis

Baxter registered gross profit of $1.11 billion in the first quarter, up 7% year over year. As a percentage of revenues, adjusted gross margin contracted 60 basis points (bps) to 43.8% in the first quarter.

Adjusted operating income increased 8% year over year to $448 million in the quarter. As a percentage of revenues, operating margin contracted 10 bps to 16.7% in first-quarter 2018.

Guidance

Baxter raised its financial outlook for 2018.

The company expects sales growth of 5% at cc. It expects adjusted earnings from continuing operations in the range of $2.85-$2.93 per share for the full year.

For the second quarter of 2018, the company expects sales growth of approximately 5% at cc. The company expects adjusted earnings from continuing operations in the band of 69-71 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to three lower.

VGM Scores

At this time, BAX has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth and momentum investors than value investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, BAX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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