What's In Store For Mallinckrodt (MNK) This Earnings Season?

Mallinckrodt plc (NYSE:MNK) is set to report first-quarter fiscal 2017 results on May 8.

The company’s track record has been impressive so far. Mallinckrodt delivered a positive average earnings surprise of 8.7% in the last four trailing quarters. Let’s see how things are shaping up for this announcement.

Mallinckrodt’s shares declined 25.9% in the past one year, compared with the Zacks classified Medical-Generics Drugs industry’s fall of 13.9%.

Factors Impacting This Quarter

Mallinckrodt is currently focused on reshaping its product portfolio through strategic acquisitions and non-core asset divestitures. The company sold its Nuclear Imaging business owing to the persistent macroeconomic challenges.

Mallinckrodt’s acquire-to-invest policy is apparently paying off as both Inomax and Therakos continue to witness solid demand. Growth rate of Inomax is expected to return to more traditional mid single-digits growth rates in the long run. Ofirmev is also projected to grow strongly on the back of increased volume.

Acthar continues to grow in mid-single to low double digit range, driven predominately from volume increases in both commercial and public payer plans as the company is expanding its marketing efforts into traditional on-label indications such as pulmonology and ophthalmology. Such trends are expected to persist.

However, Mallinckrodt’s Specialty Generics segment continues to be a laggard. The weakness is expected to persist as stiff competition continues to hurt both volumes and prices. The company expects double-digit declines in revenues from this segment to impact gross margins.

Revenues from Therakos are projected to decline due to production issues with the company’s third-party manufacturer for kits supporting the older XTS product.

The acquisition of hemostasis drugs – Recothrom Thrombin topical (recombinant), PreveLeak and Raplixa (fibrin sealant) from The Medicines Company (NASDAQ:MDCO) has strengthened its growing hospital portfolio. The company launched Preveleak and Raplixa and expects a slow but steady uptake. Sales from Recothrom are expected to remain flat or decline.

Earnings Whispers

Our proven model does not conclusively show that Mallinckrodt will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, for the company is -0.61%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mallinckrodt currently carries a Zacks Rank #3, which is favorable but the company’s negative ESP makes surprise prediction difficult. Note, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other health care stocks that you may want to consider, as our model shows that they too 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.

Horizon Pharmaceutical plc (NASDAQ:HZNP) has an Earnings ESP of +4.0% and a Zacks Rank #3. The company is expected to release results on May 8.

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