What's In The Cards For Allergan (AGN) This Earnings Season?

Allergan plc( (NYSE:AGN) will report first-quarter 2017 earnings on May 9, before the market opens. Last quarter, the company delivered a positive earnings surprise of 2.90%.

Allergan’s share price is up 16.1% this year so far, outperforming the 1% decline witnessed by the Zacks classified Medical-Generics Drug industry.

Allergan’s earnings performance has been mixed so far, with the company beating expectations in three of the past four quarters and missing on one occasion. The average negative earnings surprise over the last four quarters is 0.08%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

While Allergan’s revenues should be driven by new product launches, international growth and growth from key established products like Botox, Linzess, Restasis; earnings growth will be driven by revenues and operating expense management.

The performance of new products like Avycaz (treatment for adult patients with complicated intra-abdominal and urinary tract infections), Vraylar (bipolar I disorder and schizophrenia), Kybella (double chin reduction) and Viberzi (adults suffering from irritable bowel syndrome with diarrhea) will also be in focus. Viberzi, and Vraylar did well in the past two quarters and we expect the trend to continue in the to-be-reported quarter as well.

However, Namenda IR is facing generic competition, which will continue to hurt sales of the drug. Meanwhile, Namenda XR sales also declined in the previous quarter due to lower demand and shift of promotional efforts to Namzaric is a once-daily, fixed-dose combination of Namenda XR and Aricept. We do not expect the trend to reverse this quarter. Meanwhile, investors will be interested to hear about Namzaric’s performance in the quarter. Asacol/Delzicol sales will also continue to be hurt by reduction in demand for Ascaol HD following the launch of an authorized generic in Aug 2016.

Meanwhile, the LifeCell acquisition, which closed in February this year, should support the top-line.

For the first quarter, the company expects revenues of approximately $3.5 billion, which includes two months of LifeCell revenues. This quarter will record the lowest revenues this year. Sales are expected to be hurt by an anticipated change in U.S. wholesale buying patterns and normal seasonality in the first quarter.

Earnings Whispers

Our proven model does not conclusively show that Allergan is likely to beat on earnings 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. That is not the case here, as you will see below.

Zacks ESP: The Most Accurate estimate stands at $3.28, while the Zacks Consensus Estimate is pegged higher at $3.32. This results in an Earnings ESP of -1.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allergan’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

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

Stocks in the pharma sector that have both a positive ESP and a favorable Zacks Rank are:

Editas Medicine, Inc. (NASDAQ:EDIT) , which is expected to release on May 15, has an Earnings ESP of +32.26% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

ImmunoGen, Inc. (NASDAQ:IMGN) with an Earnings ESP of +2.78% and a Zacks Rank #3. The company is scheduled to release results on May 5.

FIBROGEN INC (NASDAQ:FGEN) with an Earnings ESP of +23.81% and a Zacks Rank #3. The company is scheduled to release results on May 9.

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