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What's in the Cards for Perrigo (PRGO) This Earnings Season?

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Perrigo Company plc (PRGO - Free Report) is scheduled to report second-quarter 2019 results before market open on Aug 8.

The company’s earnings beat the Zacks Consensus Estimate in three of the last four reported quarters and missed the same once with the average positive surprise being 4.36%.

Shares of the company have gained 32% so far this year compared with the industry’s increase of 15.8%.

In the last reported quarter, Perrigo delivered a positive earnings surprise of 13.83%

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

Factors Likely to Influence Results

Perrigo has reconfigured its marketed portfolio and is accelerating its innovation pipeline.

In May 2019, the company agreed to sell its animal health unit for $185 million in cash to PetIQ (PETQ - Free Report) as part of its transformation into a self-care company for accelerating growth and reducing costs. In the same month, the company announced the acquisition of privately-held Ranir Global Holdings, the global leader in private label oral self-care products. Both the transactions were completed last month. Although we expect minimal impact on revenues from these transactions, the company may provide details on cost savings and synergies from these deals on its second-quarter earnings call.

Meanwhile, Perrigo’s sales at the Consumer Self Care Americas segment were boosted by the company’s initiative to switch prescription drugs to over-the-counter brands. Moreover, the new products in the Consumer Self Care Americas and Consumer Self Care International segments saw improved sales in the past couple of quarters – a trend expected to continue this quarter. However, declining sales at animal health business and loss of sales from discontinued products may offset the gain from new products

The company’s ongoing patent litigations related to several drugs may increase expenses in the second quarter. The Notice of Amended Assessment for a tax liability of $1.9 billion from the Irish government remains a major overhang. We expect an update on the appeal filed previously on the earnings call.

Last year, the company had announced its plan to spin off its Rx business to create value for shareholders and focus on expanding its leading consumer business. The company remains on track to spin off the Rx segment in 2019 or 2020. Investors may expect an update related to this segment on the upcoming earnings call.

Meanwhile, the ongoing restructuring initiatives and operating expense discipline are anticipated to save expenses and cushion the company’s bottom line in the second quarter.

Earnings Whispers

Our proven model does not conclusively show that Perrigo is likely to beat estimates this reporting cycle. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate (80 cents) and the Zacks Consensus Estimate (82 cents) is -2.76%.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Although Perrigo’s Zacks Rank #2 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some biotech stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

Anavex Life Sciences (AVXL - Free Report) has an Earnings ESP of +4.00% and a Zacks Rank #2. The company is scheduled to release second-quarter results on Aug 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adverum Biotechnologies (ADVM - Free Report) has an Earnings ESP of +14.75% and a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 8.

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