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Allergan (AGN) Q2 Earnings: Will the Stock Disappoint?

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Allergan plc (AGN - Free Report) is scheduled to report second quarter 2016 results before the opening bell on Aug 8. The company delivered a positive earnings surprise of 1.67% in the first quarter. Let’s see how things are shaping up for the second quarter announcement.

Acquisitions to Drive Earnings

Allergan’s top as well as bottom line should continue to be driven by the acquisition of Botox-maker Allergan Inc. as well as other acquisitions. Botox Migraine, Namenda XR, and Vraylar should continue driving 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 help reduce the impact of the Jul 2015 entry of Namenda IR generics. Performance of medical dermatology, which struggled during the first quarter, should improve in the back half of the year.

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.

Meanwhile, earlier this week, Allergan divested its generics business to Teva Pharmaceutical Industries Ltd. (TEVA - Free Report) and also signed an agreement to sell its Anda distribution segment. Allergan has been treating its generics business as discontinued operations and will treat the Anda distribution segment as discontinued operations from second quarter 2016.

With the sale of the generics business bringing in $33.4 billion in cash, Allergan will commence its previously announced share buyback program of up to $10 billion shortly. The company will initially buy back shares worth $5 billion over the remainder of 2016.

Proceeds from the Teva deal will also be used to pay down debt and invest in the business.

On the second quarter call, investor focus will remain on the company’s updated outlook now that the Teva deal has gone through.

Surprise History

The company’s track record is good with earnings surpassing expectations in each of the last four quarters. The average beat over the last four quarters is 2.90%.

ALLERGAN PLC Price and EPS Surprise

ALLERGAN PLC Price and EPS Surprise | ALLERGAN PLC Quote

Earnings Whispers?

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

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.49%.

Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

Other Stocks to Consider

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

The Earnings ESP for Ionis Pharmaceuticals, Inc. (IONS - Free Report) is +10.71% and it carries a Zacks Rank #2. The company will release second-quarter results on Aug 9.

Incyte Corporation (INCY - Free Report) has an Earnings ESP of +300.00% and carries a Zacks Rank #2. It will be reporting second-quarter results on Aug 9.

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