On July 8, we have updated our research report on Baxter International Inc. (BAX). The company depicts a stable earnings stream with positive surprises in three of the last four quarters with an average beat of 3.9%.
BAX, in fact, operates in the life-sustaining and critical care products category that should remain relatively insulated from economic downturns. Its products are not commodity-like in nature and provide a recurring revenue stream.
The Gambro acquisition strengthened BAX’s role in the hemodialysis market. The acquisition helps the company gain an established set of products, which strengthen its existing line of dialysis products.
BAX released a promising guidance, both for the second quarter and full year 2014. For the second quarter of 2014, the company expects revenues to grow between 12 and 13%, barring the impact of foreign currency.
For full year 2014, BAX anticipates revenue growth in the range of 9 to 10%, excluding the impact of foreign exchange. The company also expects adjusted earnings between $5.05 and $5.25 per share for the year, reflecting year-over-year growth of 7.4 to 11.7%.
However, BAX depends on the EU market for about a third of its revenues. This is a cause for concern given recent fiscal tightening, a gloomy outlook for hospital spending and tightening of reimbursement.
Further, BAX faces pricing pressure due to the advent of group purchasing organizations (GPOs) in the U.S. The current economic climate has bolstered the bargaining power of GPOs, which might put pressure on the company’s top line.
Currently, BAX retains a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical products industry are OraSure Technologies, Inc. (OSUR), Wright Medical Group Inc. (WMGI), and Symmetry Medical, Inc. (SMA).
OraSure Technologies and Wright Medical Group retain a Zacks Rank #1 (Strong Buy), while Symmetry Medical carries a Zacks Rank #2 (Buy).
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