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Tough Times Ahead for Endo Health

ENDP AGN

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Endo Health Solutions (ENDP - Analyst Report) recently issued a disappointing outlook for 2013. The US-based diversified healthcare company expects adjusted earnings per share for 2013 in the range of $4.40 -$4.70 per share. The guidance range is significantly below the Zacks Consensus Estimate of $5.02 per share.

The company expects to end 2013 with revenues in the range of $2.80 - $2.95 billion, again below the Zacks Consensus Estimate of $3.1 billion. We believe that the entry of a generic competitor, Watson Pharma , for Endo Health’s lead drug Lidoderm in September 2013 is primarily responsible for the disappointing 2013 guidance. Moreover, the 2013 outlook also assumes generic competition for Endo Health’s key pain drug Opana ER. Consequently, Opana ER’s sales for 2013 are expected to be 20% less on a year-over-year basis.

We remind investors that Endo Health had earlier forecasted 2013 adjusted earnings in the range of $5.20-$5.40 per share on revenues of $3.0 - $3.2 billion. The company withdrew the projection last month and issued the fresh guidance in January 2013.

Apart from issuing 2013 outlook, the company also maintained its view for 2012. The company continues to expect adjusted earnings for 2012 at or below the low end of the forecasted range of $5.00-$5.10 per share. The Zacks Consensus Estimate for 2012 is currently pegged at $4.99 per share. The company expects to unveil its financial results for fourth quarter and full year 2012 by the end of next month.

We have a Neutral recommendation on Endo Health. The stock carries a Zacks #3 Rank (Hold) in the short run. Health care stocks that carry a Zacks #2 Rank (Buy) include Allergan, Inc. (AGN - Analyst Report).

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