Update: Baxter's Earnings Beat Reaffirms Bull Thesis

| About: Baxter International (BAX)
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Baxter surpasses analyst expectations for Q2, 2014.

Based on this event, I reaffirm my bullish thesis on Baxter.

I anticipated moderate growth in my initial June report, and Baxter's latest quarterly report corroborates this position.

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.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.