Mallinckrodt plc MNK is set to report third-quarter fiscal 2015 results on Aug 4, 2015.
Mallinckrodt’s track record has been impressive. The company beat estimates in the last four quarters with a positive average earnings surprise of 24.58%. Let’s see how things are shaping up for this announcement.
Factors Influencing This Quarter
Although Mallinckrodt’s Specialty Brands and Specialty Generics segments will continue to drive revenues, currency fluctuations may affect sales this quarter. Moreover, the company said on its second-quarter fiscal 2015 call that it expects Specialty Generics sales to be slower in the upcoming quarters due to competitive pressure.
However, Ofirmev and Acthar (added to its portfolio last year upon the acquisitions of Cadence Pharmaceuticals and Questcor Pharmaceuticals, respectively) sales may support the top line.
During this quarter, Mallinckrodt acquired Ikaria Inc. to strengthen its business in the hospital market. With the addition of Inomax to its portfolio, Mallinckrodt gained access to the market for neonatal critical care, which helped it to diversify its portfolio in the Specialty Brands segment.
While the company is streamlining its business, it intends to cut expenses related to the selling, general and administrative activities in the third and fourth quarters of fiscal 2015. Research and development expenses may also decrease.
What Our Model Indicates
Our proven model does not 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 not 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 -0.54%. This is because the Most Accurate estimate is $1.84 while the Zacks Consensus Estimate stands higher at $1.85.
Zacks Rank: Mallinckrodt currently carries a Zacks Rank #3, which when combined with a negative ESP, makes surprise prediction difficult.
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.
Stocks That Warrant a Look
Here are some 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:
Aegerion Pharmaceuticals, Inc. AEGR has an Earnings ESP of +85.19% and carries a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 5.
Mylan N.V. MYL has an Earnings ESP of +1.15% and carries a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 6.
Epizyme, Inc. EPZM has an Earnings ESP of +3.08% and carries a Zacks Rank #2. The company is slated to release second-quarter results on Aug 6.
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