Mallinckrodt plc MNK is set to report second-quarter fiscal 2015 results on May 5.
Mallinckrodt’s track record has been impressive with the company beating estimates comfortably in the last four quarters. The average earnings surprise over the last four quarters stands at 25.6%. Let’s see how things are shaping up for this announcement.
Factors to Influence Q2 Results
The acquisition of Cadence Pharmaceuticals added Ofirmev to the company’s specialty pharmaceuticals portfolio and thus, expanded its pain management franchise. Uptake for Ofirmev continues to be strong with its growing use in hospitals’ surgical specialties. With Ofirmev in the kitty, Mallinckrodt can target the adjacent hospital market where Cadence has a strong presence. Ofirmev will likely be a primary growth driver in fiscal 2015 driven by an increase in the number of hospitals using the product as well as the number of vials used in each procedure.
Acthar Gel, which became part of the company’s portfolio following the Questcor acquisition, will also boost sales by enabling the company to build its autoimmune and rare disease franchise.
However, seasonal timing will impact sales in the second quarter.
Meanwhile, in a bid to expand into the hospital growth platform, Mallinckrodt acquired privately-held critical care company Ikaria, Inc. from a Madison Dearborn-led investor group for approximately $2.3 billion. We expect further updates on incremental revenues and earnings from the acquisition on the second-quarter call.
What Our Model Indicates
Our proven model conclusively shows that Mallinckrodt 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 be able to beat estimates. That is exactly 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 pegged at 2.03%. This is because the Most Accurate estimate currently stands at $1.51 while the Zacks Consensus Estimate is $1.48.
Zacks Rank: Mallinckrodt currently carries a Zacks Rank #1, which when combined with a positive ESP, makes us highly confident of an earnings beat.
However, we caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
Other Stocks That Warrant a Look
Here are other health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Impax Laboratories Inc. IPXL has an Earnings ESP of +15.00% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 11.
Tetraphase Pharmaceuticals, Inc. TTPH has an Earnings ESP of +6.06% and carries a Zacks Rank #3. It is expected to report first-quarter results on May 6.
Actavis plc ACT has an Earnings ESP of +0.78% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 11.
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