Baxter (BAX) Q1 Earnings: A Surprise in Store for the Stock?

Baxter International Inc. BAX is set to report first-quarter 2016 earnings on Apr 26. Last quarter, Baxter reported earnings of 43 cents per share, which beat the Zacks Consensus Estimate by 38.7% (12 cents). Notably, the company’s earnings have topped the Zacks Consensus Estimate in the last four quarters, by an average of 25%.

Let’s see how things are shaping up for this quarter.

Factors at Play

For the first quarter of 2016, Baxter expects sales growth in the range of 3% to 4%, at constant currency. Including the impact of foreign exchange rate volatility, Baxter estimates sales decline of 2% on a year-over-year basis. Adjusted earnings are forecasted in the range of 28 cents to 30 cents per share.

We believe Baxter’s expanding product pipeline is a key growth catalyst. Newly launched products like SIGMA SPECTRUM infusion pump and AMIA APD cycler with SHARESOURCE two-way connectivity are expected to drive top-line growth in the quarter. We expect continuing robust performance from the IV solutions in the quarter.

Moreover, the ongoing restructuring program will help in reducing operating expenses. However, continuing foreign exchange rate volatility and lower U.S. cyclophosphamide sales (expected to decline by $90 million year over year in full-year 2016) are major headwinds.

Earnings Whispers

Our proven model does not conclusively show that Baxter is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Baxter has a 0.00% ESP. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 29 cents.

Zacks Rank: Baxter carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP; but when combined with a 0.00% ESP, it makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Stocks to Consider

Here are a few stocks worth considering that, per our model, have the right combination of elements to post an earnings beat this quarter:

PAREXEL International Corporation PRXL with earnings ESP of +2.25% and a Zacks Rank #1.

Align Technology Inc. ALGN with earnings ESP of +12.82% and a Zacks Rank #2.

Becton, Dickinson and Company BDX with earnings ESP of +2.49% and a Zacks Rank #2.

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