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Mylan (MYL) to Post Q4 Earnings: Will the Stock Disappoint?

Zacks Equity Research

Mylan N.V. MYL is scheduled to report fourth-quarter 2016 results on Mar 1, after the market closes. The company’s performance has been mixed so far, having beaten earnings estimates in two of the trailing four quarters and missing in the other two. Overall, it has delivered an average negative surprise of 2.05%.

Last quarter, the company recorded a negative earnings surprise of 8.0%. Let’s see how things are shaping up for this announcement.

Shares of Mylan have performed better than the Zacks categorized Medical-Generic Drugs industry in the past one year with the stock losing 11.6% compared to the industry’s decline of 23.9%.

Factors to Consider This Quarter

Concurrent with the third-quarter results, Mylan reiterated its outlook for 2016. The company expects earnings in the range of $4.70–$4.90 per share.

It has been a dismal 2016 for Mylan and we do not expect the fourth quarter to be any different from this trend. Mylan has been under immense pressure since Aug 2016 when the company faced criticism for the price increase of EpiPen since its acquisition of the drug in 2007 from lawmakers, consumers and the common people alike.

The pricing controversy even led to a congressional hearing and attracted immense censure. Reeling under pressure, Mylan tried to mitigate the issue by offering a savings card for up to $300, expanding the eligibility of its patient assistance program and announcing the upcoming launch of a generic EpiPen at a discount of over 50% on the branded product’s price.

Moreover, Mylan booked a $465 million charge related to the settlement with the U.S. Department of Justice (DoJ) and other government agencies regarding the classification of EpiPen, for purposes of the Medicaid Drug Rebate Program.

Also, right after the pricing issue, Mylan made it to the headlines for wrongly classifying EpiPen as a generic product in the Medicaid Drug Rebate Program. The misclassification implied that Mylan has been greatly underpaying rebates to Medicaid for the drug for a long time than it would have if the drug was classified as a branded one.

Most recently, in Dec 2016, 20 U.S. states filed a federal lawsuit against several generic drug makers including Mylan. Per the lawsuit, the companies were accused of being involved in illegal conspiracy to reduce competition, and artificially hiking and manipulating prices of generic prescription drugs.

Mylan’s Generics segment has been performing well over the last few quarters and should continue the momentum this quarter as well. Moreover, the company has seen quite a few generic launches over the past few quarters and this one was no exception. Newly launched products should perform well and aid the top line, while acquisitions are likely to contribute meaningfully, thereby driving segmental growth.

In Dec 2016, Mylan announced the launch of the authorized generic for EpiPen Auto-Injector at a wholesale acquisition cost of $300 per epinephrine injection USP two-pack, which is more than 50% lower than the WAC of EpiPen 2-Pak Auto-Injectors.

However, Mylan’s Specialty segment, of which EpiPen is the most significant product, is expected to take a hit. On the fourth-quarter call, investor focus will be on the company’s performance as well as on the EpiPen pricing controversy given that lawmakers continue to question the company’s price policy. Mylan thus continues to remain in the headlines for the wrong reasons due to such controversies.

Earnings Whispers

Our proven model does not conclusively show that Mylan is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to likely post an earnings beat. That 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 -0.71%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mylan currently has a Zacks Rank #4 (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.

Mylan N.V. Price and EPS Surprise

Mylan N.V. Price and EPS Surprise | Mylan N.V. Quote

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider instead, as our model shows that these 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 carries a Zacks Rank #2. The company is slated to release results on Feb 27.

Tesaro, Inc. TSRO has an Earnings ESP of +0.51% and a Zacks Rank #3. The company is scheduled to release results on Feb 28.

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