Endo (ENDP) Up 4.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Endo International (ENDP). Shares have added about 4.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Endo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;"><u><strong>Endo Beats on Q2 Earnings & Sales, Raises Guidance</strong></u></p><p style="text-align: justify;">Endo reported better-than-expected second-quarter 2018 results. The company increased its outlook for the year.</p><p style="text-align: justify;">Earnings from continuing operations were 76 cents per share, which beat the Zacks Consensus Estimate of 55 cents. However, earnings declined from 93 cents recorded in the year-ago quarter.</p><p style="text-align: justify;">Revenues came in at $714.7 million in the quarter, surpassing the Zacks Consensus Estimate of $685.05 million. However, the top line was down 18% year over year, primarily due to the loss of marketing exclusivity in the first half of 2017 for the first-to-file ezetimibe tablets, the generic version of Zetia (ezetimibe tablets).</p><p style="text-align: justify;">Moreover, product discontinuation in the generic pharmaceuticals segment, pricing pressure from increased competition primarily impacting the generics base business, divestiture of Litha and Somar, and the cessation of Opana ER shipments to customers by Sep 1, 2017 accounted for the decline.</p><p style="text-align: justify;"><strong>Quarterly Highlights</strong></p><p style="text-align: justify;">Endo now has four reportable business segments: (1) U.S. Generic Pharmaceuticals, (2) U.S. Branded - Specialty & Established Pharmaceuticals, (3) U.S. Branded - Sterile Injectables and (4) International Pharmaceuticals.</p><p style="text-align: justify;">U.S. Generic Pharmaceuticals recorded sales of $241 million in the quarter, down 37% due to the loss of marketing exclusivity for the first-to-file Zetia tablets. Product discontinuances including the authorized generic of metoprolol and increased competition dampened the generic business. During the reported quarter, the segment launched praziquantel tablets, the first-to-market generic version of Biltricide. In July 2018, the segment launched colchicine tablets, the authorized generic of Colcrys.</p><p style="text-align: justify;">U.S. Branded Pharmaceuticals sales were down 13% to $212.6 million due to cessation of product shipments of Opana ER in the third-quarter of 2017. Specialty Products revenues increased 9%, driven by strong performance of Xiaflex. Xiaflex sales increased 27% year over year reflecting strong volume growth of the product for the indication of Dupuytren's Contracture and Peyronie's Disease.</p><p style="text-align: justify;">During the second quarter, Endo advanced its cellulite treatment development program. The company initiated two phase III clinical trials of collagenase clostridium histolyticum ("CCH") for the treatment of cellulite. Recruitment has been accelerated in both the trials and top-line results from these trials are now expected in the fourth quarter of 2018 (previous projection: first quarter of 2019).</p><p style="text-align: justify;">U.S. Branded - Sterile Injectables sales of $217.8 million was up 21%, driven by strong growth of Adrenalin and Vasostrict. In April, Endo entered into definitive agreements to acquire Somerset Therapeutics, LLC, a specialty pharmaceutical company that develops and markets sterile injectable and ophthalmic drugs for the U.S. market, and the business of its affiliate Wintac Limited, which operates as Somerset Therapeutics' contract developer and manufacturer. The company acquired these businesses for approximately $190 million. The acquisition will be closed by the end of 2018. During the reported quarter, Endo launched glycopyrrolate injection, the generic version of Robinul, as Somerset Therapeutics' exclusive distributor. In July, the segment launched ertapenem for injection, the authorized generic of Invanz.</p><p style="text-align: justify;">Endo also entered into an exclusive licensing agreement with Nevakar, a specialty pharmaceutical company developing multiple assets in the ophthalmic and injectable areas. Both the companies have collaborated for the development of five differentiated, sterile injectable products in the United States and Canada. While Nevakar will develop and seek FDA approval for these products, Endo's Par Pharmaceuticals Sterile Products division will launch and distribute them upon approval.</p><p style="text-align: justify;">The International Pharmaceuticals division generated sales of $43 million, down from $67 million in the year-ago quarter due to recent divestitures. Endo sold Mexican subsidiary, Somar, to Advent International in October 2017. Endo also sold its South African subsidiary, Litha Healthcare Group in July 2017.</p><p style="text-align: justify;"><strong>2018 Outlook</strong></p><p style="text-align: justify;">Endo now expects revenues between $2.75 billion and $2.85 billion in 2018 (earlier estimate: $2.6 billion and $2.8 billion). The company expects Xiaflex’s full-year revenue growth to be in the high-teens percentage range versus its previous guidance of low- to mid-teens growth. U.S. Branded Sterile Injectables revenues are now expected to grow in the high-teens percentage range. The company anticipates earnings from continuing operations in the range of $2.50-$2.60 per share (earlier estimate: $2.15-$2.55).<br /> </p>
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, Endo has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Endo has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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