Perrigo Company PRGO is set to report second-quarter 2015 results on Aug 5 before the market opens. Last quarter, the company delivered a negative earnings surprise of 3.45%. Let’s see how things are shaping up for this announcement.
Will the Segments Continue to Underperform?
In Mar 2015, Perrigo acquired Omega Pharma to form a leading over-the-counter health care company. Post-acquisition, Perrigo changed its fiscal year to the calendar year. The company also plans to change its reporting segments to Consumer HealthCare, Branded Consumer Healthcare (newly acquired Omega business), Rx Pharmaceuticals, Specialty Sciences and Other (which will include the active pharmaceutical ingredients (API) business).
Till the last reported quarter, several segments at Perrigo including Nutritionals, active pharmaceutical ingredients and Consumer Healthcare were underperforming.
The company expects 2015 earnings in the range of $7.50 to $8.00 per share, representing an increase of 20% to 28%. Net sales are expected to lie between $5.4 billion and $5.7 billion in 2015. We could see an updated guidance based on its second-quarter performance.
Meanwhile, Mylan MYL is looking to acquire Perrigo and has received the European regulatory approval to move forward with its proposed buyout. Investor focus is expected to remain on Mylan-Perrigo updates in the near term.
What Our Model Indicates
Our proven model does not conclusively show that Perrigo is likely to beat on 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 likely post an earnings beat. 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 pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $2.01 per share.
Zacks Rank: Perrigo currently carries a Zacks Rank #2 (Buy). Although the company’s Zacks Rank #2 enhances the predictive power of the ESP, the company’s ESP of 0.00% makes a surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are a few 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.
The Earnings ESP for Immune Design Corp. IMDZ is +20.41% and it carries a Zacks Rank #3. The company is expected to release results on Aug 13.
Momenta Pharmaceuticals Inc. MNTA has an Earnings ESP of + 74.36% and carries a Zacks Rank #3. The company is expected to release results on Aug 4.
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