Endo (ENDP) To Report Q3 Earnings: What's In The Cards?

Endo International plc (NASDAQ:ENDP) is expected to report third-quarter 2018 results on Nov 8, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 38.2%. In fact, it pulled off a positive surprise in each of the trailing four quarters, recording average positive surprise of 29.1%.

Shares of Endo’s have gained 116.4% year to date, against the industry’s decline of 4.1%.

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

Factors Influencing This Quarter

Propelled by strong results in the first half, Endo raised its guidance along with its second-quarter results. Endo now expects revenues between $2.75 billion and $2.85 billion in 2018 (earlier estimate: $2.6 billion and $2.8 billion).

The company is in the process of redefining its business, given the persistent decline in the Generic business, which is expected to face challenges. The focus now is on sterile injectables and Xiaflex. Xiaflex’s performance was outstanding in the first half, propelled by strong volume growth for the indication of Dupuytren's Contracture and Peyronie's Disease.

We expect the drug’s momentum to continue in the third quarter as well. The company expects Xiaflex’s full-year revenue growth to be in the high-teens percentage range versus its previous guidance of low- to mid-teens growth.

U.S. Branded Sterile Injectables revenues are now expected to grow in the high-teens percentage range. The company anticipates earnings from continuing operations to be $2.50-$2.60 per share (earlier estimate: $2.15-$2.55).

While the turnaround might take time, the company seems to be on the right track. Endo advanced its cellulite treatment development program. The company initiated two phase III clinical trials of collagenase clostridium histolyticum ("CCH") for the treatment of cellulite. Recruitment has been accelerated in both the trials and top-line results from these trials are now expected in the fourth quarter of 2018.

Revenues from sterile injectable business are being driven by continued growth of Adrenalin. The business is poised to become Endo's core business. In April, Endo entered into definitive agreements to acquire Somerset Therapeutics, LLC, a specialty pharmaceutical company that develops and markets sterile injectable and ophthalmic drugs for the U.S. market, and the business of its affiliate Wintac Limited, which operates as Somerset Therapeutics' contract developer and manufacturer. The acquisition will be closed by the end of 2018.

During the last reported quarter, Endo launched glycopyrrolate injection, the generic version of Robinul, as Somerset Therapeutics' exclusive distributor. In July, the segment launched ertapenem for injection, the authorized generic of Merck's (NYSE:MRK) Invanz. New launches should propel growth.

During the third-quarter earnings call, investors are expected to focus on the company’s performance and pipeline updates.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Endo this quarter. This 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.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -3.63%. This is because the Most Accurate Estimate is 57 cents, while the Zacks Consensus Estimate is pegged higher at 59 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Endo currently carries a Zacks Rank #3, which is favourable. However, the negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks to Consider

Here are some health care stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

CRISPR Therapeutic (NASDAQ:CRSP) has an Earnings ESP of +3.53% and a Zacks Rank #1. The company is expected to release third-quarter results on Nov 14. You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon Pharma (NASDAQ:HZNP) has an Earnings ESP of +2.41% and a Zacks Rank #3. The company is expected to release third-quarter results on Nov 7.

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