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Can Allergan (AGN) Keep the Earnings Streak Alive in Q3?

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Allergan plc will be reporting third-quarter 2016 earnings on Nov 2, before market open. Last quarter, the company delivered a positive earnings surprise of 2.13%.

Allergan’s performance has been pretty impressive, with consistent positive surprises. The average earnings beat over the last four quarters is 3.44%.

ALLERGAN PLC Price and EPS Surprise

 

ALLERGAN PLC Price and EPS Surprise | ALLERGAN PLC Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

Allergan’s top as well as bottom line should continue to be propelled by acquisitions, particularly that of Botox-maker Allergan Inc. Botox Migraine, Namenda XR, and Vraylar should continue to drive growth. Linzess and Viberzi should also perform well.

However, Namenda IR is facing generic competition. Investors will be interested to hear about Namzaric’s performance. Namzaric was launched in the second quarter of 2015 and is expected to reduce the impact of the Jul 2015 entry of Namenda IR generics.

The performance of new products like Avycaz (treatment for adult patients with complicated intra-abdominal and urinary tract infections), Vraylar (bipolar I disorder and schizophrenia), Kybella (double chin reduction) and Viberzi (adults suffering from irritable bowel syndrome with diarrhea) will also be in focus.

Allergan sold its generics and Anda distribution business to Teva Pharmaceutical Industries Limited (TEVA - Free Report) in August and October, respectively. Both these business lines will be treated as discontinued operations.

Importantly, on the second-quarter conference call, management had said that while the Anda divesture will hurt second-half revenues by $100 million, contribution from new product launches will be greater in the second half, typical to pharma seasonality.

Earnings Whispers

Our proven model does not conclusively show that Allergan is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Most Accurate estimate stands at $3.55 while the Zacks Consensus Estimate is pegged higher at $3.60. So, the Earnings ESP is -1.39%. Please check our Earnings ESP Filterthat enables you find stocks that are expected to come out with earnings surprises.

Zacks Rank: Allergan’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks in the healthcare sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Ariad Pharmaceuticals Inc. is expected to release results on Nov 1. The company has an Earnings ESP of 5.26% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shire plc with an Earnings ESP of +1.26% and a Zacks Rank #2. The company is scheduled to release results on Nov 1.

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