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Endo (ENDP) to Post Q4 Earnings: Will the Stock Disappoint?

Zacks Equity Research

Endo International plc ENDP is scheduled to report fourth-quarter 2016 results on Feb 28, before the opening bell. The company has been consistently beating earnings expectations. In fact, Endo posted a positive surprise in each of the trailing four quarters, with an average positive surprise of 12.3%.

Last quarter, the company delivered a positive earnings surprise of 24.69%.

Shares of Endo have underperformed the Zacks classified Medical-Drugs industry in the past year. Specifically, the stock lost 73.5% during this period in comparison to industry’s gain of 2.2%.

Let's see how things are shaping up for this quarter.

Factors Influencing This Quarter

Concurrent with the third-quarter results, Endo reiterated its outlook for 2016. The company continues to expect revenues in the range of $3.87 billion to $4.03 billion. It expects earnings in the range of $4.50 to $4.80 per share.

Endo’s top line should continue to benefit from robust performance of Xiaflex, sterile injectables and alternative dosages. The branded segment performed better than expected in the third quarter. Xiaflex experienced strong demand particularly in Peyronie's disease and the drug is expected to grow in the low-double-digits in 2017. However, since the announcement of the CDC guidelines, Endo continues to witness pressure in terms of prescription volumes in the opioid space.

The company also expects to see a modest decline in pain products. In addition, the earlier-than-expected generic entrant of Voltaren Gel has affected the 2016 outlook. Moreover, the reimbursement restrictions for Lidoderm further limit the use of the drug. The company thus expects Lidoderm sales to decline modestly. Endo expects a mid-to-high teen decline at the segment in 2016.

The Generics base business continues to be under pressure with revenues declining approximately 20% sequentially in third-quarter 2016. The decline can be attributed to deepening consortium pricing pressures, additional competitive entrants, product discontinuations as well as discrete factors, including destocking and shifts in purchase timing due to market conditions.

The business is expected to decline in low 30s in 2016. Steeper-than-anticipated consortium pricing pressures, both in and out of formal bid-cycles, could weigh on the company’s Generics business in the future and are likely to impact the adjusted gross margin profile.

On the fourth-quarter call, investors are expected to focus on the company’s performance. Updates on its restructuring efforts across the Generics product and R&D portfolio, as well as its manufacturing facility network are also expected by the investors.

Earnings Whispers

Our proven model does not conclusively show that Endo is likely to beat 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. This is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at -1.84%. This is because the Most Accurate estimate stands at $1.60 while the Zacks Consensus Estimate stand is pegged at $1.63. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank:  Endo currently carries a Zacks Rank #5 (Strong Sell). As it is, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Endo International PLC Price and EPS Surprise

 

Endo International PLC Price and EPS Surprise | Endo International PLC Quote

Stocks That Warrant a Look

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

Pacira Pharmaceuticals, Inc. PCRX is expected to release results on Mar 1. The company has an Earnings ESP of +20% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Exelixis, Inc. EXEL is +200% and it carries a Zacks Rank #2. The company is slated to release results on Feb 27.

Tesaro, Inc. TSRO has an Earnings ESP of +2.55% and a Zacks Rank #3. The company is scheduled to release results on Feb 28.

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Exelixis, Inc. (EXEL): Free Stock Analysis Report
 
Endo International PLC (ENDP): Free Stock Analysis Report
 
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TESARO, Inc. (TSRO): Free Stock Analysis Report
 
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