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We expect Forest Laboratories Inc. to miss earnings expectations when it reports fourth-quarter fiscal 2013 results on Apr 23, before the opening bell. Forest Labs’ fiscal year ends on Mar 31.

Why a Likely Negative Surprise?

Our proven model does not conclusively show that Forest Labs is likely to beat earnings this quarter. That is because a stock needs to have both a positive earnings Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at 18 cents while the Zacks Consensus Estimate is higher at 19 cents. This results in a difference of -5.26%.

Zacks Rank #3 (Hold): Forest Labs’ Zacks Rank #3, however, complicates the predictive power of ESP. This combined with a negative earnings ESP makes Forest Labs an unlikely candidate for an earnings beat this quarter. 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.

Factors at Play for 4Q

In the preceding quarter Forest Labs’ results were hit by the loss of exclusivity of Lexapro as well as the disappointing performance of Namenda. We expect the company’s results will continue to be affected by generic competition for Lexapro and the performance of Namenda, which is expected to face generic competition in early 2015. Moreover, the performance of new products, especially Teflaro, has been below expectations over the last few quarters.

Stocks to Consider

Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Eli Lilly and Company (LLY - Analyst Report) has an Earnings ESP of +3.85% and holds a Zacks Rank #3 (Hold)

GileadSciences (GILD - Analyst Report) has an Earnings ESP of +2.08% and carries a Zacks Rank #3 (Hold).

VIVUS Inc. (VVUS - Analyst Report), has an Earnings ESP of +11.77% and carries a Zacks Rank #3 (Hold).

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