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Baxter International (NYSE:BAX) is slated to report its third-quarter 2011 results on Thursday, October 20. The current Zacks Consensus Estimate for the quarter is $1.08, representing an estimated 6.86% annualized increase.

Second Quarter Recap

Baxter reported second quarter adjusted (excluding one-time items) earnings per share of $1.07, beating the Zacks Consensus Estimate of $1.02, and surpassing the year-ago earnings of 93 cents. Reported net income increased to $615 million (or $1.07 per share) from $535 million (or 90 cents a share) a year ago.

Total revenues were $3,536 million, up 11% year over year, beating the Zacks Consensus Estimate of $3,378 million. U.S. revenues for the quarter jumped 5% to $1,418 million while ex-U.S. sales were higher 15% (up 7% in constant currency) to $2,118 million.

The Plasma Proteins business, where Baxter had encountered structural problems in the past, performed well with revenues of $363 million, up 16% (up 11% in constant currency) year over year. Antibody Therapy also delivered good results with sales of $381 million, climbing 23% (up 21% in constant currency) year over year.

Estimate Revision Trend

Agreement

The overall trend in estimate revisions for Baxter has seen little activity in the recent past. Of the 15 analysts covering the stock, none changed their estimates for the current quarter over the prior week, while there were two upward revisions during the past month.

Estimates for 2011 have been flat for the most part, with no changes over the prior week and only one (out of 17 analysts) upward revision over the past month. The current Zacks Consensus Estimate for 2011 is $4.30, reflecting an estimated 8.14% 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 3.83% 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 (NYSE:BDX) in certain niches. We currently have a long-term Neutral rating on Baxter supported by a short-term Zacks #3 Rank (Hold).

Disclosure: No positions

Source: Baxter Earnings Preview