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Perrigo Company (PRGO - Analyst Report) is scheduled to report fourth quarter fiscal 2013 earnings before the opening bell on Aug 15, 2013.The company’s fiscal year ends on the last Saturday of Jun every year.

Last quarter, Perrigo reported earnings of $1.42 per share, missing the Zacks Consensus Estimate by $0.02 per share. However, we expect the company to beat expectations in the final quarter of fiscal 2013.

Why a Likely Positive Surprise?

Our proven model shows that Perrigo 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 +0.64%. This is meaningful and a 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 Perrigo’s Zacks Rank #3 and an ESP of +0.64% makes us confident of an earnings beat on Aug 15.

Factors at Play

The company has delivered positive earnings surprises in three of the last four quarters with an average beat of 1.61%. We expect the Rx Pharmaceuticals (generic) segment at Perrigo to continue performing well. The addition of nine generic prescription drugs resulting from Perrigo’s purchase of Fera’s ophthalmic product portfolio in Jun 2013 has further strengthened the Rx Pharmaceuticals segment. Newly launched products are also expected to perform well in the final quarter of fiscal 2013.

Growth-by-acquisition strategy is Encouraging

Perrigo has lately been quite active on the acquisition front. In Jun 2013, Perrigo acquired the eye-care portfolio of privately-held Fera Pharmaceuticals for approximately $93 million in cash. On Apr 1, 2013, the company announced that it has completed the acquisition of companion animal health company, Velcera, Inc., for approximately $160 million in cash.

In Feb 2013, the company acquired UK-based Rosemont Pharmaceuticals Ltd. By acquiring Rosemont Pharma, Perrigo has strengthened its position in the UK oral liquid formulations space.

Last month, Perrigo inked a definitive agreement to acquire Irish entity  Elan Corporation for approximately $8.6 billion in a bid to boost its revenue stream and save taxes.

The cash and stock deal, cleared by the boards of directors of both the companies, is expected to close by the end of calendar year 2013. On completion of the deal, Perrigo’s revenue stream would be boosted as it will receive significant royalties on multiple sclerosis drug Tysabri from Biogen Idec Inc. (BIIB - Analyst Report)

Another Stock to Consider

Apart from Perrigo, Cyberonics Inc. (CYBX - Analyst Report) is expected to beat earnings. The company carries a Zacks Rank #1 (Strong Buy) and has an ESP of +4.35%.

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