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The Zacks Analyst Blog Highlights: Chicago Bridge & Iron, Shire, Actavis, UCB and WuXi PharmaTech

Zacks Equity Research

For Immediate Release

Chicago, IL – May 2, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Chicago Bridge & Iron (CBI), Shire (SHPG), Actavis, Inc (ACT), UCB SA (UCBJF) and WuXi PharmaTech (Cayman) Inc. (WX).

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Here are highlights from Wednesday’s Analyst Blog:

Chicago Bridge & Iron Likely to Beat

We expect engineering construction company Chicago Bridge & Iron (CBI) to beat expectations when it reports first quarter 2013 results on May 2.

Why a Likely Positive Surprise?

Our proven model shows that Chicago Bridge is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at 1.33%. This is very meaningful and a leading indicator of a likely positive earnings surprise for the stock.

Zacks #3 Rank (Neutral): We note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of Chicago Bridge’s Zacks Rank # 2 (Buy) and +1.33% ESP makes us very confident in looking for a positive earnings beat on May 2.

What is Driving the Better Than Expected Earnings?

Strong order activity coupled with rising demand for energy infrastructure, especially in the LNG, gas processing and oil sands markets across the world are expected to lead to a positive earnings surprise in the upcoming quarter.

The positive trend is seen in the trailing four-quarter average surprise of 1.14%, which was greatly helped by the 9.6% surprise in the last-reported quarter. This was possible because Chicago Bridge had a robust quarter in terms of backlogs and orders. In addition, revenue growth across three of the company’s operating segments along with strong license sales also helped.

Shire Settles Lawsuit with Actavis

Shire (SHPG) recently announced that the company settled its pending litigation with Actavis, Inc (ACT), formerly known as Watson Pharmaceuticals.

The litigation was primarily related to Actavis’ Abbreviated New Drug Applications (ANDAs) for generic versions of Shire's Attention Deficit Hyperactivity Disorder (:ADHD) drug, Intuniv.

As per the settlement, Actavis is licensed to manufacture and market its generic versions of Intuniv in the US from Dec 1, 2014 or earlier subject to certain limited circumstances.

Additionally, Shire is entitled to a 25% royalty on gross profits from the sales within the 180 day period of Actavis' exclusivity.

Meanwhile, the settlement also resolves outstanding litigation against Watson's ANDA. The ANDA is still pending approval at the US Food and Drug Administration (:FDA).

We note that the FDA approved Actavis' ANDA for a generic version of Intuniv in Oct 2012 and awarded Actavis 180 days of ANDA market exclusivity.

The launch of Intuniv’s generic by Actavis will impact Shire’s sales. We note that Intuniv is one of the three key drugs in the ADHD market, the two others being Vyvanse and Adderall XR. As per IMS Health, Intuniv generated sales of approximately $475 million for the twelve months ending Jan 31, 2013.

Shire holds a strong position in the ADHD market. We note that Vyvanse generated approximately 22% of total revenues in 2012. Vyvanse (EU trade name: Elvanse) was approved in the EU in Dec 2012. Shire is currently developing Vyvanse for additional indications such as the treatment of negative symptoms of schizophrenia and binge eating disorder.

However, we are concerned about the increasing competition in the ADHD market due to the entry of generics. Shire’s share of the US ADHD prescription market declined to 26.6% in Dec 2012 from 27.9% in the year-ago period.

Shire currently carries a Zacks Rank #4 (Sell). Right now, stocks which look well placed include UCB SA (UCBJF) and WuXi PharmaTech (Cayman) Inc. (WX). Both stocks carry a Zacks Rank #1 (Strong Buy).

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Read the analyst report on CBI

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Read the analyst report on ACT

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