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Teva (TEVA) to Report Q1 Earnings: What's in the Cards?

Zacks Equity Research

Teva Pharmaceutical Industries Limited TEVA will report first-quarter 2019 results on May 2 before market open. In the last reported quarter, the company delivered a negative earnings surprise of 5.36%.

Teva’s earnings surpassed expectations in three the last four quarters, with the average positive surprise being 18.24%.

This generic drugmaker’s shares have declined 0.4% this year so far against the industry’s increase of 6.6%.



Let’s see how things are shaping up for this announcement.

Factors to Consider

Teva reports under three segments — North America (United States and Canada), Europe and International Markets.

Pricing erosion in U.S. generics market, rapid erosion in sales of key multiple sclerosis drug, Copaxone and divestiture of some non-core assets are expected to hurt North America segment sales in the first quarter.

Importantly, sales of all other branded products Bendeka, Treanda, ProAir and Qvar declined in the past three quarters. The chances of sales trends improving in the first quarter are minimal. Moreover, introduction of generic versions of ProAir following patent expiration in 2018 may hurt sales of the branded drug in the first quarter.

Importantly, on the call, investors will be keen to know the sales numbers of Teva’s newly launched anti-calcitonin gene-related peptide (“CGRP”) drug, Ajovy (fremanezumab) injection, as a preventive treatment for migraine. Ajovy has been performing strongly since launch, enjoying growing demand due to its flexible dosing options - quarterly and monthly. An update is expected on the first-quarter conference call. Investors will also be interested to know how management plans to capture market share for Ajovy against Amgen and Lilly’s CGRPs, which were also launched last year.

Meanwhile, additional competition for Teva’s largest product, Concerta authorized generic, should also hurt generics sales in the quarter. Importantly, on the fourth-quarter call, the company had said that there were signs of stabilization in U.S. generic drug pricing. The company also said that the rate of sales erosion in the North American Generic business slowed significantly in the third and the fourth quarters of 2018 from second-quarter levels due to optimization of its generics product portfolio as well as product launches. The positive trend is expected to continue as several new generic products were launched in the first quarter.

An important recent generic launch was that of Mylan’s MYL EpiPen (epinephrine) auto-injector for severe allergy treatment. Regarding its generic launch, Teva had said it expects to see normal supply levels by the end of first quarter/early second quarter. An update is expected on the call.

In Europe as well as International Markets, loss of revenues from divestitures/discontinued business activities is likely to hurt sales. The decline in sales of generic medicines and Copaxone is expected to continue, which can offset the positive impact of generic launches.

Cost savings from Teva’s aggressive restructuring initiatives are likely to provide some support to the bottom line. However, marketing costs are expected to be higher in the first quarter due to investments to support Ajovy’s launch.

Earnings Whispers

Our proven model does not conclusively show that Teva will beat on 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. That is not the case here, as you will see below.

Earnings ESP: Its Earnings ESP +2.95% as the Zacks Consensus Estimate stands at 58 cents per share and the Most Accurate Estimate is pegged at 59 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Teva has a Zacks Rank #5 (Strong Sell).  We caution against Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some large drug stocks that have the right combination of elements to beat on earnings this time around:

Allergan plc. AGN has an Earnings ESP of +0.73% and a Zacks Rank #3. The company is slated to release results on May 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

GlaxoSmithKline GSK has an Earnings ESP of +1.27% and a Zacks Rank #3. The company is slated to release results on May 1.

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