Perrigo (PRGO) Q3 Earnings: What's In Store For The Stock?

Perrigo Company plc (NYSE:PRGO) is scheduled to report third-quarter 2016 results on Nov 10, before the opening bell. Perrigo has a mixed track record with the company beating earnings expectations on two occasions and missing the same in the other two. Overall, the company has recorded an average negative earnings surprise of 2.10%.

In the last reported quarter, Perrigo posted a negative earnings surprise of 3.50%. Let’s see how things are shaping up at the company this quarter.

Factors Influencing This Quarter

At the time of announcing its second-quarter 2016 results, Perrigo provided a disappointing earnings guidance for 2016. The company now expects earnings in the range of $6.85 to $7.15 per share, compared to its previous projection of $8.20–$8.60. The company said that the cut in the earnings outlook was mainly due to revised expectations of price erosion and changing market dynamics affecting the Prescription Pharmaceuticals (Rx) business.

In the Rx segment, price erosion in the second quarter was weaker than anticipated due to an increasingly aggressive pricing environment. As a result, Perrigo expects price erosion of approximately 9% to 10% through the rest of the year at the Rx segment, compared to its prior expectations of approximately 6%. The Rx segment is thus predicted to generate net sales of approximately $1 billion (old guidance: approximately $1.2 billion) in 2016.

The guidance was also trimmed based on lower expectations from the Branded Consumer Healthcare (BCH) segment as Perrigo continues to implement transformational changes and improvements in products and processes in this business. The BCH segment is projected to record a soft performance reflecting lower-than-anticipated revenues for certain high-margin products. The segment is now expected to garner net sales of approximately $1.3 billion (old guidance: approximately $1.4 billion) in 2016.

Meanwhile, a delay in new product launches, along with softness in pricing in the Consumer Healthcare segment, is expected to continue hurting the performance of the segment.

Moreover, Perrigo has lowered its net sales guidance for 2016. It now anticipates net sales in the range of $5.3 million to $5.5 billion, compared with the prior guidance of $5.6–$5.9 billion. The lowered outlook reflects delayed new product launches primarily due to changes related to regulatory approvals for certain new products, and modified market share penetration assumptions and timing for new products in Europe.

On the third-quarter call, focus will be on the company’s performance as well as that of its business segments.

PERRIGO CO PLC Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Perrigo is likely to beat earnings 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. This 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 -3.77%. This is because the Most Accurate estimate is pegged at $1.53, while the Zacks Consensus Estimate stands higher at $1.59.

Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.

Zacks Rank: Perrigo currently carries a Zacks Rank #2. Although a favorable Zacks Rank enhances the predictive power of the ESP, the company’s negative ESP makes 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 That Warrant a Look

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

OncoCyte Corporation (NYSE:OCX) has an Earnings ESP of +10.00% and it carries a Zacks Rank #3. It is scheduled to report third-quarter results on Nov 10.

Tokai Pharmaceuticals, Inc. (NASDAQ:TKAI) is expected to report third-quarter results on Nov 8. The company has an Earnings ESP of +18.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Synergy Pharmaceuticals Inc. (NASDAQ:SGYP) is expected to report third-quarter results on Nov 14. The company has an Earnings ESP of +18.18% and a Zacks Rank #3.

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