In early June, I wrote a bullish article on Baxter (NYSE:BAX), with a thesis stating that the company's outlook should improve with aging populations, which will increase the demand for elective and non-elective medical procedures, and, in turn, dictate the need for specialized medical devices. I also stated that the expansion of Baxter's ADVATE program into emerging markets, namely China and Brazil, was another compelling reason to accumulate. However, there are underlying risks to a Baxter investment, given that the company has reeled from a series of bad quarters, prompting concern amid the company's plans to spin off its Biosciences division in mid 2015. But after the latest earnings beat, I reaffirm my bull thesis since Baxter appears on track to improve growth at a faster rate than expected by analysts, but remain on a moderate course as anticipated in my initial report.
As reported by Seeking Alpha, some key highlights of Baxter's latest earnings report are as follows:
- Earnings per share increases to $1.26, up 5%, versus $1.20 in Q2 2013, surpassing analyst expectations by $0.04.
- Revenue rises to $4.26B, up 16.1% YOY, surpassing analyst expectations by $140 million.
- Management amends 2014 sales guidance for 10-11%, compared to prior guidance for 9-10%.
- Management also amends 2014 EPS guidance for $5.10-5.20, compared to prior guidance for $5.05-5.25.
Why the earnings beat? Twofold: Baxter achieved $4.3 billion in total sales, up 16%, driven by substantial overall growth. Its BioScience and Medical Products divisions increased 6.9% and 23.7% to $1.75 billion and $2.5 billion, respectively. Baxter also reported a strong demand for ADVATE, a key asset of its Haemophilia franchise, with double-digit growth for Q2 bolstered by emerging markets. Notably, the company converted 35% of the 10,000 Haemophilia A patients in Brazil to ADVATE, and expects to generate more than $100 million in 2014. As a reminder, Baxter last reported a 30% conversion in Q1 2014. The company also benefited from the launch of Rixubis for Haemophilia B, as well as from new product launches for the new fiber prophylactic indication. Therefore, I reaffirm my bull thesis in light of the latest earnings beat, as well as Baxter's outstanding prospects for future growth.
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