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Baxter International (NYSE:BAX) is slated to report its first-quarter 2011 results on Thursday, April 21. The current Zacks Consensus Estimate for the quarter is 93 cents, representing an estimated 0.20% annualized decline.

Fourth Quarter Recap

Baxter reported fourth quarter 2010 adjusted (excluding one-time items) earnings per share of $1.11, beating the corresponding Zacks Consensus Estimates of $1.10 and surpassing the year-ago result of $1.03.

Reported net income dropped 26% year over year to $423 million (or 72 cents per share), mainly resulting from special after-tax charges of $227 million for asset impairment and costs related to Baxter’s initiatives in the area of business optimization, higher reserves for litigation and in-process R&D expenses. Among the positive factors, Baxter retained a strong product pipeline with several products in late-stage clinical development.

Revenues for the quarter were $3,498 million, up 1% year over year, beating the Zacks Consensus Estimate of $3,460 million. Domestic revenues edged up 1% to $1,440 million while overseas sales were flat year over year (up 3% in constant currency) at $2,058 million.

The Plasma Proteins business, where Baxter had encountered structural problems in the past, performed well with revenues of $416 million, up 9% (up 13% in constant currency) year over year. Antibody Therapy also delivered good results with sales of $386 million, climbing 10% (up 13% in constant currency) year over year

Estimate Revision Trend

Agreement

The overall trend in estimate revisions for Baxter has seen minor activity in the recent past. Of the 16 analysts covering the stock, 1 raised his/her estimate, for the first quarter, over the last 7 days while there was no movement in the opposite direction. Moreover, one analyst increased his/her estimate, for the quarter, during the past month while there were no instances of downward movement.

Estimates for 2011 have been inclined towards the positive side, with 2 out of 19 analysts raising his/her forecast over the prior week and 4 hiking their forecasts during the past month. There were no downward revisions during these timeframes. The current Zacks Consensus Estimate for 2011 is $4.20, reflecting an estimated 5.62% year-over-year increase.

Magnitude

Given the relative shortage of estimate revisions, the magnitude of revisions for the forthcoming quarter has hit a plateau over the last week and month.

Baxter has produced positive surprises in the previous three quarters and we expect a similar trend to continue. The company produced an average positive earnings surprise of 2.04% 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.

The lingering neutrality surrounding the stock can be lifted by consistent execution. Baxter is a good bet for value investors willing to wait as fundamentals improve. Among others, it competes with Becton, Dickinson and Company (NYSE:BDX) and Talecris Biotherapeutics Holdings Corp. (NASDAQ:TLCR) in certain niches. We currently have a long-term Neutral rating on Baxter.

Source: Baxter International: Earnings Preview