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Why Is Baxter (BAX) Up 7.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Baxter International (BAX - Free Report) . Shares have added about 7.9% in that time frame, outperforming the S&P 500.

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

Baxter Q3 Earnings Beat Estimates, EPS Guidance Raised

Baxter reported third-quarter 2018 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%.

Baxter posted sales of $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).

Growth was backed by strong revenues from the company’s Renal Care, Pharmaceuticals, Advanced Surgery and Acute Therapies businesses. However, per management, these businesses were impacted by market disruptions due to Hurricane Maria.

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).

In Americas, Baxter recorded sales of $1.5 billion, up 2.7% on a year-over-year basis and 4% at cc.

In EMEA, sales totaled $707 million, up 3.7% from the year-ago quarter and 4% at cc.

In APAC, sales of $563 million declined 0.7% from the prior-year quarter and were flat at cc.

Segmental Details

Renal Care

This segment recorded sales of $910 million in the reported quarter, up 1.6% year over year. Sales at the segment increased 3% at cc.

Medication Delivery

Sales at the segment grossed $652 million, down 4% from the year-ago quarter. Sales at the segment inched down 3% at cc.

Pharmaceuticals

Sales at the segment were $519 million, up 4.2% from the year-ago quarter and 5% at cc.

Clinical Nutrition

Sales at the segment totaled $218 million, down 2.2% from the year-ago quarter’s tally. At cc, revenues fell 2%.

Advanced Surgery

Sales at the segment were $200 million, up 14.3% from the year-ago quarter and 15% at cc.

Acute Therapies

Sales at the segment were $122 million, up 8.9% from the prior-year quarter and 10% at cc.

Other

Sales at the segment grossed $146 million, up 17.7% on a year-over-year basis. At cc, revenues increased 17% in the quarter.

Margin Analysis

Baxter registered adjusted gross profit of $1.28 billion in the third quarter, up 4.4% year over year. As a percentage of revenues, adjusted gross margin expanded 100 basis points (bps) to 46.3% in the third quarter.

Adjusted operating income increased 12.5% year over year to $505 million in the quarter. As a percentage of revenues, operating margin expanded 170 bps to 18.3% in third-quarter 2018.

Guidance

For fourth-quarter 2018, Baxter expects sales growth of 1% on a reported basis and 3-4% at cc. Adjusted earnings per share are projected in the band of 71-73 cents.

For 2018, Baxter expects adjusted earnings per share within $2.98 to $3. Notably, the company has lifted the low end of the previously-issued guidance.

Revenues are expected to grow 5% on a reported basis and 4% at cc in 2018. This is marginally lower than the earlier provided view of 6% on a reported basis and 5% at cc.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.1% due to these changes.

VGM Scores

At this time, Baxter has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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




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