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Can Allergan (AGN) Beat Earnings Estimates Again in Q1?

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We expect Allergan plc (AGN - Free Report) to beat expectations when it reports first-quarter 2019 results on May 7, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 3.37%.

Allergan’s earnings performance has been strong, with the company beating expectations in each of the past four quarters. The average positive earnings surprise over the last four quarters is 6.92%.

Allergan’s share price has risen 10% this year so far compared with the industry’s increase of 7.3%.

 

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

Factors to Consider

We believe that Allergan’s key products like Botox, Juvéderm collection of fillers, Vraylar, Linzess and Lo Loestrin are likely to support sales growth in the quarter. The Zacks Consensus Estimate for Botox is $876 million.

On the fourth-quarter call, the company had said that there was no visible negative impact on Botox demand following the launch of CGRPs, Amgen’s (AMGN - Free Report) Aimovig, Lilly’s Emgality and Teva’s Ajovy. The company also said that the introduction of the CGRPs should expand the migraine market and that Botox and the CGRPs can coexist in the larger market. An update is expected on the first-quarter call.

In the first quarter of 2019, Allergan expects revenues to be in the range of $3.40 billion to $3.55 billion and earnings per share between $3.40 and $3.60.

However, revenues in the first quarter are expected to be hurt by the impact of recalls of Ozurdex and textured implants in certain international markets as well as industry-wide pricing pressures and currency headwinds. Also, lost revenues due to the sale of medical dermatology assets in September 2018 are expected to be an overhang.

Loss of exclusivity and resultant generic competition for several key drugs are expected to hurt Allergan’s revenues in the first quarter. Allergan is facing loss of exclusivity for several of its key products. The first generic versions of Alzheimer’s treatment, Namenda XR and Estrace cream were launched last year and are eroding sales of the branded drugs significantly. The generic version of blockbuster dry-eye drug, Restasis, Allergan’s second best-selling drug, is expected to be launched in 2019.

However, Restasis sales are already on a decline due to lower selling price and demand. We do not expect to see any improvement in the first-quarter results. The Zacks Consensus Estimate for Restasis is $213 million.

Gross margin is expected to be hurt by unfavorable product mix due to loss of exclusivity of higher margin products as well as the impact of recalls.

Earnings Whispers

Our proven model shows that Allergan is likely to beat estimates this quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($3.57 per share) and the Zacks Consensus Estimate ($3.55 per share), is +0.73%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Allergan has a Zacks Rank #3. The combination of Allergan’s Zacks Rank #3 and positive ESP makes us confident of an earnings beat in the upcoming release.

Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some large drug stocks that have the right combination of elements to beat on earnings this time around:

Novo Nordisk (NVO - Free Report) has an Earnings ESP of +0.80% and a Zacks Rank #3. The company is slated to release results on May 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

GlaxoSmithKline (GSK - Free Report) has an Earnings ESP of +3.55% and a Zacks Rank #3. The company is slated to release results on May 1.

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