Regeneron (REGN) Q2 Earnings: Can The Stock Surprise?

Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is scheduled to release second-quarter 2016 results on Aug 4, before the opening bell. The company’s performance so far has been mixed. In the last four reported quarters, the company has surpassed earnings estimates on two occasions while it missed in the other two. Overall, the company has recorded an average negative earnings surprise of 0.06%.

Last quarter, the company recorded a positive earnings surprise of 16.94%. Let’s see how things are shaping up for this announcement.

Will Eylea Continue to Drive Revenues?

Regeneron’s key growth driver, Eylea, should continue to perform well in the second quarter of 2016 and contribute meaningfully to the company’s top line. In the first quarter of 2016, the company continued to witness strong sales growth for Eylea, both in the U.S. and abroad. While U.S. sales of the drug surged 44% year over year, it increased approximately 5% sequentially driven by market share gains.

Product revenue from ex-U.S. Eylea sales is recorded by Bayer (DE:BAYGN) AG (OTC:BAYRY) . We note that Regeneron has a global development and commercialization agreement with Bayer outside the U.S. for Eylea.

Encouraged by the strong performance of the eye drug, the company raised the Eylea U.S. net sales guidance for 2016. It is expected to grow 20–25% in 2016. Previously, the company had anticipated Eylea sales to grow approximately 20%.

Apart from Eylea, investor focus will remain primarily on the performance of the PCSK9 inhibitor, Praluent. We note that Regeneron has co-developed Praluent with Sanofi (NYSE:SNY) . While Praluent's launch is currently underway, Regeneron noted on the first-quarter call that the product is facing a difficult reimbursement environment outside the U.S.

On the second-quarter call, focus will be on the company’s performance including the eye drug and Praluent along with pipeline updates.

Earnings Whispers

Our proven model does not conclusively show that Regeneron 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. 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 $1.73 per share.

Zacks Rank: Regeneron currently carries a Zacks Rank #3, which when combined with 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.

A Stock That Warrants a Look

Here is a health care stock that you may want to consider instead, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Conatus Pharmaceuticals Inc. (NASDAQ:CNAT) has an Earnings ESP of +5.41% and a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 3.