On Oct 20, 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 4.37%.
Baxter 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 Baxter’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 promising revenue guidance, both for the fourth quarter and full year 2014. For the fourth quarter of 2014, Baxter expects revenues to grow by 3%, barring the impact of foreign currency.
Baxter also expects adjusted earnings in the range of $1.30 to $1.33 per share for the quarter. The current Zacks Consensus Estimate of $1.32 lies within the guided range.
For full year 2014, Baxter expects higher revenue growth of 11 to 12%, up from the prior range of 10 to 11%, excluding the impact of foreign exchange.
However, Baxter 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, Baxter 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, Baxter retains a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the medical products industry are GW Pharmaceuticals plc (GWPH), ZELTIQ Aesthetics, Inc. (ZLTQ), and Alere Inc. (ALR).
GW Pharmaceuticals and ZELTIQ Aesthetics sport a Zacks Rank #1 (Strong Buy), while Alere carries a Zacks Rank #2 (Buy).
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