TLCR Talecris Biotherapeutics Holdings Corp. (MM)

Baxter International (BAX) is slated to report its second-quarter 2011 results on Thursday, July 21. The current Zacks Consensus Estimate for the quarter is $1.02, representing an estimated 9.74% annualized increase. 

First Quarter Recap

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

The company posted a net income of $570 million (or 98 cents per share) versus a loss of $63 million (or 11 cents a share) a year ago. First-quarter 2010 results 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.

Revenues were $3,284 million, up 12% year over year, beating the Zacks Consensus Estimate of $3,178 million. Sales 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.

Estimate Revision Trend

Agreement

The overall trend in estimate revisions for Baxter has seen almost no activity in the recent past. Of the 17 analysts covering the stock, none changed their estimates, for the current quarter, over the prior week and month.

Estimates for 2011 have been flat for the most part with no changes over the prior week and only one downward revision over the past month. The current Zacks Consensus Estimate for 2011 is $4.26, reflecting an estimated 6.92% year-over-year increase.    

Magnitude

Given the general lack of estimate revisions, the magnitude of revisions, for both the forthcoming quarter and fiscal year, has hit a plateau over the last week and month.

Baxter has produced positive surprises in the previous four quarters and we expect a similar trend to continue. The company produced an average earnings surprise of 2.88% over the prior four quarters, meaning that it beat the Zacks Consensus Estimate by that measure.

Our Take

The news regarding Baxter 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.

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

Improved execution has lifted sentiment toward Baxter. Baxter is 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. We currently have a long-term Neutral rating on Baxter.

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