Will Glaxo (GSK) Beat Earnings Estimates This Season? - Analyst Blog
GlaxoSmithKline GSK is scheduled to report first-quarter 2015 results on May 6. Glaxo’s performance has been disappointing in 2014 with the company missing earnings expectations in three out of the four trailing quarters with an average miss of 0.49%.
In the last reported quarter, Glaxo recorded a negative earnings surprise of 4.65%. Let’s see how things are shaping up for this announcement.
Factors Influencing this Quarter
In its fourth-quarter earnings release, Glaxo had mentioned that headwinds like increasing competition, genericization and pricing pressure, which impacted the company’s results in 2014, will continue to affect results in 2015 as well. A greater impact will be felt in the first half of the year with the company expected to deliver stronger results in the latter half. Meanwhile, unfavorable currency movement is expected to impact first-quarter 2015 sales by about 1%.
However, the company has resolved most of the supply issues that it was facing over the last few quarters. Moreover, it continues to pursue restructuring and cost-cutting initiatives.
We note that Glaxo has been struggling to deliver top-line growth in the face of genericization. Products like Valtrex, Seroxat/Paxil, Zeffix, Combivir, Lovaza and Trizivir are facing declining sales due to intense generic competition.
In addition to facing generic competition, most of Glaxo's products are up against stiff competition. Advair, one of its top revenue grossers (which generated over 27% of Glaxo's Pharmaceuticals revenues in 2014), is facing tough competition in the chronic obstructive pulmonary disease (COPD) and asthma market. Moreover, primary care contracting and pricing dynamics will continue to impact the performance of the respiratory segment.
Glaxo expects its total global respiratory sales to return to growth in 2016. Increased formulary coverage and launch of new respiratory drugs like Incruse Elllipta for COPD and Arnuity Ellipta for asthma in the U.S. should help Glaxo regain market share in the respiratory segment.
During the first quarter, Glaxo completed a three part agreement with Novartis NVS under which Glaxo acquired the latter’s vaccines business (excluding flu vaccines), sold off its oncology business and created a consumer healthcare joint venture. The first quarter will include a month’s contribution to sales and profits from the Novartis Vaccines and OTC business.
On the first quarter call, the focus will be on the company’s performance and on the Investor Meeting, scheduled to be held on the same day where Glaxo is expected to provide its earnings guidance for 2015 along with other details.
Earnings Whispers?
Our proven model shows that Glaxo is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.82%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.
Zacks Rank #3 (Hold): Note that stocks with a Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Glaxo’s Zacks Rank #3 and +1.82% ESP makes us confident of an earnings beat.
Stocks That Warrant a Look
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat.
Genocea Biosciences, Inc. GNCA has an earnings ESP of +22.81% and carries a Zacks Rank #3. The company is scheduled to release first-quarter 2015 results on May 7.
The Earnings ESP for Actavis ACT is +0.78% and it carries a Zacks Rank #2 (Buy). The company is scheduled to release results on May 11.
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