Actavis (ACT) is scheduled to report third-quarter 2014 results before the opening bell on Nov 5.
Last quarter, Actavis had posted a positive earnings surprise of 1.48%. We expect the company to beat expectations in the third quarter as well.
Why a Likely Positive Surprise?
Our proven model shows that Actavis is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.32%. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks #1 Rank (Strong Buy): Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings estimates. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
The combination of Actavis’ Zacks Rank #1 and an earnings ESP of +0.32% make us confident of an earnings beat this season.
What is Driving Better-than-Expected Earnings?
Actavis’ top as well as bottom line is expected to get a boost from the Jul 2014 acquisition of Forest Labs. The acquisition has significantly strengthened Actavis’ branded product portfolio. On its second-quarter conference call, Actavis mentioned that it expects to earn $6.25–$6.50 per share in the second half of 2014 which includes synergies from the Forest Labs acquisition. The company’s top line for the second half of 2014 is expected to be around $7 billion.
Apart from the Forest Labs acquisition, Actavis’ existing branded portfolio which includes products like Lo Loestrin, Estrace cream and Rapaflo should continue to grow. Actavis’ generic business is also expected to do well during the third quarter on the back of generic versions of Lidoderm, Cymbalta and Suboxone.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat this quarter:
Hospira Inc. (HSP) has an earnings ESP of +5.66% and carries a Zacks Rank #3. It is expected to report third-quarter results on Nov 6.
Mallinckrodt public limited company (MNK) has an earnings ESP of +3.73% and carries a Zacks Rank #2. It is expected to report third-quarter results on Nov 19.
Alnylam Pharmaceuticals, Inc. (ALNY) has an earnings ESP of +9.23% and carries a Zacks Rank #2. It is expected to report third-quarter results on Nov 5.
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