Baxter Remains Neutral - Analyst Blog
15 May 2012 - 12:45AM
Zacks
We reiterate our Neutral rating on
Baxter International (BAX). Its
earnings per share of $1.01 beat the Zacks Consensus Estimate of 99
cents and sailed past the year-ago earnings of 98 cents per share.
The first quarter results beat Baxter’s earlier earnings guidance
of 98 cents to $1.00 per share.
Sales for the quarter were $3,388
million, up 3% year over year, surpassing the Zacks Consensus
Estimate of $3,302 million. On a segment-wise basis, Bioscience
sales were $1,462 million, up 4% (up 5% in constant currency) year
over year. Revenues from Medical Products were up 3% year over year
(up 3% in constant currency), to $1,926 million.
For the second quarter of fiscal
2012, the company expects growth in revenues in the range of 3% to
4% in constant currency and adjusted earnings per share in the band
of $1.10 and $1.12. For the full year 2012, Baxter continues
to forecast constant currency sales growth of about 4% to 5% and
adjusted earnings per share in the range of $4.49 to $4.57 (earlier
$4.47 to $4.57).
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.
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 slow growth 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. The
lingering bearishness surrounding the stock can be lifted by
consistent execution. In the meantime, the company continues to
deploy robust cash flow for stock repurchase and dividend. Among
others, the company competes with Becton, Dickinson and
Company (BDX) in certain niches. We currently have a
Neutral long-term rating on Baxter. The stock presently retains a
Zacks #3 Rank, which translates into a short-term “Hold”
recommendation.
BAXTER INTL (BAX): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis Report
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