Reaffirming Baxter at Neutral - Analyst Blog
March 15 2012 - 11:15AM
Zacks
We remain Neutral on Baxter
International (BAX). The company reported fourth quarter
adjusted (excluding one-time items) earnings per share of $1.17
thereby beating the corresponding Zacks Consensus Estimate of $1.16
and surpassing the year-ago earnings of $1.11. The fourth quarter
results were in line with Baxter’s earlier earnings guidance of
$1.15 to $1.18.
Reported net income for the fourth
quarter increased roughly 9.5% year over year to $463 million (or
82 cents per share). The company’s results in the reported quarter
include special charges (after tax) of about $200 million (or 35
cents per share).
Total revenues were $3,594 million
in the fourth quarter, up 3% year over year, beating the Zacks
Consensus Estimate of $3,578 million. Domestic revenues for the
quarter increased 2% to $1,466 million while overseas sales were
higher 3% (up 3% in constant currency) to $2,128 million.
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 the other positives, 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 (SYNO), 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.
We are concerned about the
company’s conservative earnings guidance for 2012 which
incorporates acquisition related dilution and foreign exchange
headwinds. Also, despite resilience in Plasma Proteins and Antibody
Therapy sub-segments, we are concerned about slowdown in sales
growth, 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) in certain niches. We currently have a
Neutral long-term rating on Baxter. The stock currently retains a
Zacks #4 Rank, which translates into a short-term Sell
recommendation.
BAXTER INTL (BAX): Free Stock Analysis Report
BECTON DICKINSO (BDX): Free Stock Analysis Report
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