Nivalis (NVLS): Can The Stock Surprise This Earnings Season?

Nivalis Therapeutics, Inc. (NASDAQ:NVLS) is expected to report second-quarter 2016 results on Aug 1. Last quarter, the company had posted a negative surprise of 15.91%. Let’s see how things are shaping up for this announcement.

Factors at Play

Nivalis, a development-stage pharmaceutical company, is focused on the discovery, development and commercialization of treatments for cystic fibrosis (CF). With no approved products in its portfolio at the moment, Nivalis does not generate revenues yet. In this scenario, investor focus will be on the company’s progress with regard to its lead candidate, cavosonstat (N91115).

Recently, the company announced the completion of enrollment in the phase II study evaluating cavosonstat for the treatment of patients with CF, who have two copies of the F508del mutation, when added to Vertex Pharmaceuticals Inc.’s (NASDAQ:VRTX) Orkambi. Top-line data should be out by the end of this year.

During the quarter, Nivalis dosed the first patient in a second phase II study on cavosonstat. This proof-of-concept study is being conducted to evaluate the effect of cavosonstat as add-on therapy to Vertex’s Kalydeco in adults who have one copy of the F508del mutation and a second mutation that results in a gating defect in the CFTR protein. Data from the study is expected in the first half of 2017.

Meanwhile, Nivalis is expected to see a sequential rise in operating expenses due to continued investment in the development of cavosonstat among other things.

Surprise History

Nivalis’ performance has been disappointing over the last four reported quarters. While the company has missed expectations on three occasions, it posted in line results in one. Overall, the company has delivered an average negative miss of 71.27%.

What Our Model Indicates

Our proven model does not conclusively show that Nivalis is likely to beat estimates 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. However, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 52 cents per share.

Zacks Rank: Though Nivalis’ Zacks Rank #2 increases the predictive power of the ESP, an ESP of 0.00% makes a surprise prediction difficult.

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

Stocks to Consider

Here are a couple of 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.

United Therapeutics Corp. (NASDAQ:UTHR) has an Earnings ESP of +3.37% and a Zacks Rank #2. It is scheduled to report second-quarter results on Jul 28.

Bristol-Myers Squibb Co. (NYSE:BMY) has an Earnings ESP of +1.49% and a Zacks Rank #1. It is also scheduled to report second-quarter results on Jul 28.