Is Endo (ENDP) Poised For A Beat This Earnings Season?

Endo International plc (NASDAQ:ENDP) is scheduled to report first-quarter 2017 results on May 9, before the opening bell. Endo posted a positive surprise in each of the trailing four quarters, with an average positive surprise of 12.7%.

Last quarter, the company delivered a positive earnings surprise of 8.59%.

Shares of Endo’s shares declined 28.2% in the last six months, underperforming the Zacks classified Medical-Drugs industry’s 9.4% gain.

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

Why A Likely Positive Surprise?

Our proven model shows that Endo is likely to beat on earnings because it has the right combination of two key ingredients, a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.87%. This is because the Most Accurate estimate is $1.16 while the Zacks Consensus Estimate is pegged lower at $1.15. 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. The combination of Zacks Rank #3 and a positive ESP makes us confident of an earnings beat in the upcoming release.

Note that Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Influencing This Quarter

Last month, the company released preliminary results for the first quarter. The company projects first-quarter 2017 revenues between $1,015 million and $1,035 million, up from $964 million in first-quarter 2016. The company expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations between $440 million and $460 million.

2017 will continue to be challenging for Endo as the generics base business and the legacy branded pain franchise are expected to decline further.

The Generics base business is under significant pressure due to intensifying consortium pricing pressures and additional competitive entrants and product discontinuations as well as discrete factors, including destocking and shifts in purchase timing due to market conditions.

The company expects the underlying rate of base business price erosion to be in the high single-digit in 2017 (excluding the impact of product discontinuances, the full-year impact of prior year competitive events, and the impact of expected new competitive events in 2017). The segment is projected to decline in the high single-to-low double-digit percentage range in 2017 which will be partially offset by growth in its sterile injectables and new launch revenues respectively.

Endo’s Branded segment continues to be under pressure due to additional competitive entrants as well as a continuous rise in the number of public policy and regulatory actions including the recent CDC guidelines related to opioid prescribing and divestiture of Strenda.

International revenues in 2017 are expected to decline in the mid to high 20% range, reflecting the divestiture of Litha as well as the competitive pressure for Paladin and the impact of foreign exchange on Somar. The company is currently assessing strategic alternatives for Somar.

Following an agreement with a wholly owned subsidiary of Novartis AG (NYSE:NVS) , Endo’s subsidiary, Paladin Labs Inc. had licensed the Canadian rights to commercialize serelaxin, an experimental drug for the treatment of acute heart failure.

However, the study failed in Mar 2017. As a result, Endo has concluded that its serelaxin in-process research and development intangible asset is fully impaired resulting in a $45 million impairment charge.

On the earnings call, investors are expected to focus on the company’s performance. Updates on its restructuring efforts across the Generics product and R&D portfolio, as well as its manufacturing facility network are also expected by the investors.

Stocks That Warrant a Look

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

FibroGen, Inc. (NASDAQ:FGEN) has an Earnings ESP of +23.81% and a Zacks Rank #3. The company is expected to release results on May 8. You can see the complete list of today’s Zacks #1 Rank stocks here.

Immune Design Corp. (NASDAQ:IMDZ) has an Earnings ESP of 11.3% and a Zacks Rank #3. The company is expected to release results on May 9.

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