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The Zacks Analyst Blog Highlights: Comstock Resources, Pfizer, Actavis, Sanofi and Novo Nordisk

Zacks Equity Research

For Immediate Release

Chicago, IL – February 8, 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 Comstock Resources Inc. (CRK), Pfizer Inc. (PFE), Actavis, Inc. (ACT), Sanofi (SNY) and Novo Nordisk (NVO).

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Here are highlights from Thursday’s Analyst Blog:

Comstock 4Q: Yet Another Miss?

Domestic energy explorer Comstock Resources Inc. (CRK) is set to release its fourth-quarter 2012 results after the closing bell on Monday, Feb 11.

In the preceding quarter, Comstock delivered a negative 92.31% earnings surprise – the third earnings miss in a row – hamstrung by depressed natural gas prices. Let’s see how things are shaping up prior to this announcement.

Factors to Consider This Quarter

Comstock’s highly gas-weighted reserves/production profile, along with its geographically concentrated asset base, is the key area of concern. Additionally, the rise in net debt/reduction of liquidity associated with the recent Delaware Basin acquisition is a drag on the balance sheet.

Taking a cautious view of gas prices, the company’s capital program specifically focuses on the promising North American liquids-rich areas, which is a major shift away from dry natural gas development. However, with natural gas prices likely to remain weak over the next one year or so, thereby pressuring profitability, Comstock’s ability to generate positive earnings surprise will be limited.

In fact, the Zacks Consensus Estimate for the fourth quarter has moved down by 6 cents to a loss of 30 cents per unit over the last 30 days as the tendency for a downward estimate revision was more obvious.

Earnings Whispers

Our proven model does not conclusively show that Comstock Resources is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1 (Strong Buy) or at least Zacks Rank #2 (Buy) or Zacks Rank #3 (Hold) for this to happen. Unfortunately this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at a loss of 34 cents, while the Zacks Consensus is narrower at a loss of 30 cents. This results in a difference of -13.33%.

Zacks Rank #3 (Hold): Comstock Resources’ Zacks Rank #3 (Hold), however, increases the predictive power of ESP. That said, we also need to have a positive ESP to be confident of an earnings surprise call.

Favorable Ruling for Pfizer

Pfizer Inc. (PFE) recently received a favorable ruling in its patent infringement case against Actavis, Inc. (ACT) for Rapamune. The US District Court for the District of Delaware declared that Pfizer’s patent for sirolimus, the active ingredient in Rapamune, is valid and infringed.

Actavis, formerly known as Watson Pharma, was looking to launch its generic version of Rapamune which is indicated for the prevention of organ transplant rejection in kidney transplant patients aged 13 years and older.

Pfizer had initiated the patent infringement lawsuit in Apr 2010. With the Court ruling in Pfizer’s favor, Actavis will not be able to launch its generic version of Rapamune before the patent expires unless the company appeals the ruling and wins. The challenged patent is slated to expire on Jan 7, 2014.

Actavis is currently reviewing the Court’s ruling and intends to consider all options including the possibility of appealing the decision.

Pfizer currently carries a Zacks Rank #3 (Hold). The company recently announced fourth quarter earnings which were above expectations but below the year-ago earnings. Results were hit by the loss of exclusivity of certain products and the unfavorable impact of currency fluctuation.

Pfizer’s 2013 guidance was in line with expectations. While near-term earnings will be driven by cost cutting efforts and share repurchases, longer-term growth will depend on the success of drug development. The company’s pipeline needs to deliver given the Lipitor loss of exclusivity and the upcoming loss of exclusivity on additional products in the next few years.

Large-cap pharma companies that currently look better-positioned include Sanofi (SNY) and Novo Nordisk (NVO). Both companies are Zacks Rank #1 (Strong Buy) stocks.

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