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Is a Beat in the Cards for Mallinckrodt (MNK) Q1 Earnings?

Zacks Equity Research

Mallinckrodt plc MNK is scheduled to report first-quarter results on May 7, before the market opens.

The company’s has surpassed expectations in the last four quarters by an average positive earnings surprise of 16.8%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model indicates that Mallinckrodt is likely to beat on earnings this quarter, as it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to be able to beat estimates.

Earnings ESP: Earnings ESP for Mallinckrodt is +0.25%. 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 when combined with a positive ESP makes us confident of an earnings beat.

Note, 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.

Factors Impacting Q1

The company now operates in two segments aligned with the previously-announced separation — the Specialty Brands, and the Specialty Generics (includes Amitiza).

Specialty Brands produces and markets branded pharmaceutical products like Acthar, Inomax and Ofirmev, among others.

Sales of Acthar, Mallinckrodt’s largest product, were dented by the residual impact of the previously-reported patient withdrawal issues. We expect softness in the sales of the drug in the first quarter.

Strong performance of Mallinckrodt’s hospital franchise (Inomax and Ofirmev) is expected to continue in the first quarter. Growth in Inomax sales is driven by strong demand and contract renewals. Ofirmev sales are expected to be driven by strong demand, as customers focus on non-opioid or multimodal pain management.

We also expect the company to throw more light on its business separation plan. In December 2018, the company announced that it intends to spin-off the Specialty Generics/Active Pharmaceutical Ingredients business along with Amitiza into a new company.

The spin-off will be completed by the second half of 2019 and will result in two separate, publicly-traded companies.

Apart from the regular top and bottom-line numbers, we expect investors to focus on updates on the company’s two late-phase programs on terlipressin and StrataGraft.  Patients are being enrolled in the ongoing phase III trial on pipeline candidate, terlipressin, for the treatment of Hepatorenal Syndrome type 1. StrataGraft is a viable, engineered, bilayer human skin substitute, currently under development for severe burns and other complex skin defects.

Share Price Performance

Mallinckrodt’s stock has lost 2.2% in the year so far compared with the industry’s growth of 7.3%.


Other Stocks to Consider

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

Gilead Sciences, Inc. GILD has an Earnings ESP of +1.54% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon Pharma HZNP has an Earnings ESP of +25.00% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 8.

Aduro Biotech, Inc. ADRO has an Earnings ESP of +82.00% and a Zacks Rank of 2.

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