TLCR Talecris Biotherapeutics Holdings Corp. (MM)

Baxter International (BAX) reported first quarter adjusted (excluding one-time items) earnings per share of 98 cents, beating the Zacks Consensus Estimates of 93 cents, and surpassing the year-ago results of 93 cents.

The results exceeded Baxter’s earlier guidance range of 92 to 94 cents for the first quarter. Among the positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.

Highlights from the First Quarter

Reported net income increased to $570 million (or 98 cents per share) versus a loss of $63 million (or 11 cents a share) a year ago. The first quarter results of 2010 included after-tax items aggregating $627 million (or $1.04 per share) arising from the Colleague infusion pump and a change in certain tax treatment.

Total revenues were $3,284 million, up 12% year over year, beating the Zacks Consensus Estimate of $3,178 million. Revenues in the prior year included an adjustment of $213 million for the Colleague infusion pump. Excluding this adjustment, worldwide sales grew 5% year over year. Domestic revenues for the quarter jumped 10% to $1,422 million while overseas sales were higher only 1% to $1,862 million.

The Plasma Proteins business, where Baxter had encountered structural problems in the past, performed well with revenues of $308 million, up 5% (up 8% in constant currency) year over year. Antibody Therapy also delivered good results with sales of $374 million, climbing 16% (up 18% in constant currency) year over year.

We have discussed the quarterly results at length here: Baxter Beats Fair and Square

Agreement – Estimate Revisions

The overall trend in estimate revisions for fiscal 2011 is overwhelmingly positive since the release of the first quarter results. Out of a total of 18 analysts covering the stock, 13 have raised their estimates over the past month with no instance of downward revision. Likewise, 11 analysts (out of a total of 18) have raised their forecasts for 2012 over the past month with only 2 lowering their estimates.   

A positive trend is also noticed, over the past week, with 5 positive revisions and no downward movement in estimate revisions for fiscal 2011. There were 6 positive revisions and 1 downward revision for fiscal 2012.

Improved execution by the company led to the positive sentiment aided by ongoing turnaround of the Plasma Proteins business.  

Magnitude – Consensus Estimate Trend

Upward estimate revisions, accompanied by directional agreement for the most part, have led to a rise in annual forecasts for Baxter.  Estimates for 2011 and 2012 have gone up by 4 cents and 3 cents, respectively, over the past 30 days. The current Zacks Consensus Estimate for fiscal 2011 is $4.25, reflecting an estimated 6.76% year-over-year growth.

Estimates for 2011 and 2012 have gone up by a penny and 2 pennies, respectively, over the past 7 days.

Baxter Stays at Neutral

Baxter issued its guidance for second-quarter fiscal 2011 and raised its estimates for 2011. For the second quarter, the company expects growth in revenues in the range of 4% to 5% in constant currency, and adjusted earnings per share in the range of $1.01 to $1.03.

Baxter anticipates growth in revenues in the range of 3% to 4% (earlier 2% to 3%), in constant currency, and adjusted earnings per share of about $4.20 to $4.28 (earlier $4.15 to $4.25) for fiscal 2011.

The news regarding Baxter remains somewhat 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.

On the flip side, despite recent improvement in Plasma Proteins and Antibody Therapy sub-segments, we are concerned about stagnation in sales, a still somber outlook for some hospital spending and tightening of reimbursement.

Improved execution has improved sentiment toward Baxter. The company remains a good bet for value investors willing to wait as fundamentals improve. Among others, it competes with Becton, Dickinson and Company (BDX) and Talecris Biotherapeutics Holdings Corp. (TLCR) in certain niches. Our Neutral recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/.

 
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