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Baxter International (NYSE:BAX) reported third quarter adjusted (excluding one-time items) earnings per share of $1.09, beating the Zacks Consensus Estimate of $1.08, and surpassing the year-ago earnings of $1.01.

The results were in line with Baxter’s earlier guidance of $1.07 to $1.09. Among the positive factors, Baxter retains a strong product pipeline with several products in late-stage clinical development.

Highlights from the Quarter

Reported net income increased roughly 10% year over year to $576 million (or $1.01 per share). The company’s results in the reported quarter included a special item (after tax) of $48 million (or 8 cents per share) related to the settlement of litigation on average wholesale prices and other issues.

Total revenues were $3,479 million in the third quarter, up 8% (up 3% in constant currency) year over year, beating the Zacks Consensus Estimate of $3,416 million. Domestic revenues for the quarter increased 1% (up 5% with adjustment for the divestiture) to $1,403 million while overseas sales were higher 13% (up 4% in constant currency) to $2,076 million.

The Plasma Proteins business, where Baxter faced structural issues in the past, again did fairly well with sales of $372 million, up 8% (up 4% in constant currency) year over year. Antibody Therapy also provided robust results with revenues of $380 million, higher 13% (up 11% in constant currency) year over year.

Agreement – Estimate Revisions

The overall trend in estimate revisions for fiscal 2011 is weighted on the positive side since the release of the third quarter results. Out of a total of 17 analysts covering the stock, 7 have raised their estimates over the past month with 3 instances of downward revision. On the other hand, the pattern is tilted toward the negative side, for 2012, with only 5 analysts (out of 17) raising their forecasts over the past month and as many as 8 lowering their estimates.

There were a small number of cases of upward movement in forecasts for both 2011 and 2012, over the past week, with no cases of downward drift.

Magnitude – Consensus Estimate Trend

The predominant upward revision of estimates for 2011 has led to a minor increase of a penny in the consensus over the prior month (static over the past week). Estimates for 2012 have reached a plateau over the past month while increasing by a penny over the last week. The current Zacks Consensus Estimate for fiscal 2011 is $4.31, reflecting an estimated 8.20% year-over-year growth.

Baxter Stays at Neutral

Baxter issued guidance for fourth-quarter fiscal 2011 and reiterated its estimates for 2011. For the fourth quarter, the company expects revenue growth in the range of 2% to 3% in constant currency and adjusted earnings per share in a band of $1.15 and $1.18. The current Zacks Consensus Estimates for the fourth quarter is $1.17.

For fiscal 2011, Baxter still forecasts growth in revenues in the range of 3% to 4% in constant currency and maintains its projection for adjusted earnings per share in a band of $4.29 and $4.32. In addition, the company forecasts cash flow from operations of about $2.8 billion.

The news regarding Baxter still 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 somewhat toward Baxter. Baxter is a good bet for value investors willing to wait as fundamentals improve further. Among others, it competes with Becton, Dickinson and Company (NYSE:BDX) in certain niches. We are currently Neutral on the stock, backed by a short-term Zacks #3 Rank (Hold).

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Source: Earnings Scorecard: Baxter International