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Baxter Posts Solid Q3, Broad Product Spectrum Raises Hopes


On Nov 8, we issued an updated research report on Baxter International Inc. BAX. Baxter recently exited the third quarter of 2017 on a favorable note, beating the Zacks Consensus Estimate on both the counts. The impressive performance by the hospital products and renal segments holds promise. The stock carries a Zacks Rank #2 (Buy).

Headquartered in Deerfield, IL, Baxter is a global medical technology company which operates in the life-sustaining and critical care products category that is cushioned against economic downturns. The company’s products are not commodity-like in nature and provide a strong recurring revenue base.

Baxter has been experiencing burgeoning demand for dialyzers across the globe as more people are afflicted with end-stage renal disease (ESRD) due to growing incidence of diabetes, blood pressure and other kidney-related diseases.

Coming to the recently-reported third quarter, Baxter’s strong product portfolio, plethora of regulatory approvals and the completion of Claris acquisition drove the top line. Buoyed by solid performance, management at Baxter lifted its full-year guidance. For 2017, Baxter estimates sales growth of approximately 4% at cc. Adjusted earnings for the year are expected in the band of $2.40 to $2.43 per share, up from the previous band of $2.34 to $2.40.

The year 2017 has been a favorable one for Baxter on the regulatory front so far. In the third quarter, management at Baxter confirmed two new FDA approvals for temporary importation of certain drugs from facilities in Canada and Mexico. Further, the FDA approval of a new premixed injectables is a key catalyst.

Coming to product portfolio, Baxter’s convenient kidney dialysis solutions, regenerative tissue products, 3-in-1 oXIRIS set for continuous renal replacement therapy and the next-generation SIGMA Spectrum infusion pump are the latest additions to the extensive product portfolio.

Notably, Baxter’s home solution system is the first technology designed to reduce storage and weight handling requirements for traditional PD therapy. Management claims to have the first patient on therapy with the new system as part of a clinical trial in 2018. Regulatory submission is expected in 2019.

Despite the ongoing political conundrum pertaining to the repealing of Obamacare in the U.S. MedTech space and devastation caused by Hurricane Maria, we believe a solid foothold in the global markets will drive results for this MedTech major. With a large proportion of sales coming from overseas markets, Baxter should benefit from developing countries' incremental investments in health care systems.

Share Price Movement

Over the past year, Baxter has outperformed the broader industry in terms of price performance. The company represented a solid return of 39.5%, higher than the industry’s gain of roughly 15.4%. The current level is also higher than the S&P 500’s return of only 19.8%.

Q3 Earnings of MedTech Majors at a Glance

With most of the S&P members having reported their numbers, the third-quarter earnings season is drawing to a close. Medical, one of the broader sectors among the 16 Zacks sectors, has put up an impressive show so far.

Positive revenue momentum and favorable revisions in estimates for the current period are the two notable features of this season.

PetMed Express PETS reported earnings per share of 43 cents in the second quarter of fiscal 2018, up 79.2% on a year-over-year basis. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Luminex LMNX reported adjusted earnings per share of 19 cents in the third quarter of 2017, up 216.7% year over year. Revenues increased almost 4.1% year over year to $74.1 million. The stock flaunts a Zacks Rank #1.

Intuitive Surgical ISRG posted adjusted earnings of $2.77 per share in the third quarter of 2017, up 34.5% year over year. Revenues increased 18% year over year to $806.1 million. The stock carries a Zacks Rank 2.

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