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Will Forest Labs (FRX) Beat Earnings Estimates This Quarter?

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Forest Laboratories, Inc. (FRX - Analyst Report) is scheduled to report its first quarter fiscal 2014 (ended Jun 30, 2013) earnings before the opening bell on Jul 23, 2013.

Last quarter, Forest Labs beat earnings with an earnings surprise of 47.06%.We expect the trend to continue in the first quarter.

Why a Likely Positive Surprise?

Our proven model shows that Forest Labs is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The Expected Surprise Prediction or ESP (Read: Zacks ESP: A Better Way to Find Earnings Surprises), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +14.29%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #3 (Hold): Note that stocks with a 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 revision momentum.

The combination of Forest Labs’ Zacks Rank #3 (Hold) and an ESP of +14.29% makes us confident of an earnings beat on Jul 23.

What is Driving the Better-than-Expected Earnings?

Bystolic, a key growth driver at Forest Labs, is expected to continue to do well in the first quarter of fiscal 2014. Low side-effect profile coupled with positive efficacy and tolerability data is expected to drive Bystolic’s revenues. Bystolic turned in sales of $455 million in fiscal 2013, up 30.8%. Bystolic sales are expected to grow 17.6% to $535 million in fiscal 2014.

Apart from Bystolic, Namenda, which was underperforming lately, improved on a sequential basis in the fourth quarter of fiscal 2013. Continued improvement in the performance of Namenda should drive results.

Forest Labs has been very active in launching new products over the last few quarters. The company has launched a number of products including Teflaro (for the treatment of patients suffering from acute bacterial skin and skin structure infection and community acquired bacterial pneumonia), Daliresp (chronic obstructive pulmonary disease) and Viibryd (major depressive disorder). Forest also launched Linzess in collaboration with Ironwood Pharmaceuticals (IRWD - Analyst Report) for constipation-predominant irritable bowel syndrome and chronic constipation. Better-than-expected performance of these new products will drive results.

Other Stocks to Consider

Forest Labs is not the only company looking up this earnings season. We also see likely earnings beat coming from these companies:

Biogen Idec. (BIIB - Analyst Report) has Earnings ESP of +2.19% and holds a Zacks Rank #3. Biogen will be reporting second quarter earnings on Jul 25 before the market opens.

Actavis, Inc. (ACT - Analyst Report) has Earnings ESP of +1.01% and holds a Zacks Rank #3. Actavis will be reporting second quarter earnings on Jul 25 before the market opens.

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