Here's What You Need to Know About Baxter International and St. Jude Medical's Upcoming Earnings

The second quarter has seen a fairly broad rally across the health care sector. A central theme underlying this sectorwide upswing has been strong biopharmaceutical sales, especially among recently launched products.

Medical devices, by contrast, have generally showed flat growth in recent quarters. The comparatively slow growth among medical device-makers is likely the result of provisions within the newly implemented Affordable Care Act, such as the medical device tax that is widely believed to lower the purchasing power of hospitals.  

Baxter International (NYSE: BAX  ) and St. Jude Medical (NYSE: STJ  ) are two top health care names with significant interests in the medical device industry. And despite the stagnant growth across this industry, we have seen both stocks move close to their 52-week highs in recent weeks. With both companies set to reveal their second quarter earnings this week, let's take a look at key issues that might determine whether or not these two stocks continue to trend higher.  

BAX Chart

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Baxter set to report on Thursday before the bell
Baxter International's management set the bar high for the second quarter by projecting sales growth of 12% to 13% year over year during its first quarter earnings call. The company expects the bulk of this growth to come from its recent acquisition of Gambro and its various medical devices, as well as double digit sales growth for Advate, its hemophilia A therapy. 

Although Baxter announced that it expects second quarter EPS to come in at around $1.18, Wall Street has an ever more bullish view of the company, projecting an EPS of $1.22 for the quarter. In terms of revenue, consensus stands at $4.12 billion heading into earnings, or 12.3% growth year over year.   

Aside from these financial metrics, we should also learn more about Baxter's planned spin off, where it will create a medical products unit and a separate biopharmaceutical company. And perhaps integral to the creation of this new biopharma company, investors should pay attention to further details of Baxter's recent acquisition of AesRx LLC for its experimental sickle cell disease treatment.

St. Jude will report on Wednesday before the bell
Unlike Baxter, Wall Street expects St. Jude's second quarter earnings and revenue to be in-line with the company's own projections. Specifically, EPS for the quarter is expected to come in at $1.00 on $1.44 billion in revenue. If this line holds for revenue, it would represent 2.5% growth year over year. 

What's key to understand is that the vast majority of St. Jude's growth is expected to come from sales of its Atrial Fibrillation products, which posted 10% year over year growth in the first quarter. By contrast, Cardiac Rhythm Management, Cardiovascular and Neuromodulation products all saw growth of less than 4% for the year. International sales of all its medical products have been outpacing domestic sales in recent quarters, increasing the company's risk of unfavorable currency fluctuations.  

Foolish wrap-up
Baxter's acquisition of Gambro has helped it generate strong top-line growth in an industry widely struggling in the U.S. Even so, the company has decided, perhaps wisely so, to create two separate companies to maximize the double digit growth expected from its biopharmaceutical unit. As such, I think Baxter and its forthcoming spin-off will be exciting companies to keep an eye on moving forward.

St. Jude, on the other hand, has seen its growth in the U.S. market come to a standstill for a number of key products, making it rely more heavily upon international sales for top-line growth. As a result, the company has also become increasingly subject to the volatility in world currency markets, which is a common theme among internationally oriented health care companies these days.

In sum, Baxter looks like it should continue to move upwards based on its projected second quarter earnings, while St. Jude might have a tough time breaking through its 52-week highs following earnings.

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