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Can Allergan (AGN) Keep the Earnings Streak Alive in Q2?

We expect Allergan plc AGN to beat expectations when it reports second-quarter 2019 results. In the last reported quarter, the company delivered a positive earnings surprise of 6.76%.

Allergan’s share price has risen 22.1% in the past year against the industry’s decline of 4.3%

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 5.79%.

Allergan plc Price and EPS Surprise

Allergan plc Price and EPS Surprise
Allergan plc Price and EPS Surprise

Allergan plc price-eps-surprise | Allergan plc Quote

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

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Factors to Consider

Sales in the second quarter are expected to be hurt by generic competition due to loss of exclusivity on some brands, impact of divestitures, regulatory changes for textured breast implants in certain international markets as well as industry-wide pricing pressure and currency headwinds.

For the second quarter, the company expects revenues to be in the range of $3.88 billion to $4.03 billion and earnings per share between $4.20 and $4.40.

While generic versions of Alzheimer’s treatment, Namenda XR and Estrace cream are already launched that of Restasis, Allergan’s second best-selling drug, is expected to be launched in 2019. On the first-quarter conference call, Allergan had said that generic version of Restasis should be launched by May. However, no such generics have been launched yet. The delayed generic entry of Restasis may prove to a tailwind for the top line in the second quarter.

Nonetheless, despite the absence of generic competition, sales of Restasis declined in the first quarter due to lower selling price.  We do not expect any improvement in the second quarter. Meanwhile, generic versions of Canasa and Rapaflo were launched in December 2018 while that of Delzicol was launched in May 2019, which can hurt sales of the branded drugs.

Key products like Botox (both cosmetic and therapeutic), Juvéderm collection of fillers, Vraylar, Linzess and Lo Loestrin are likely to support sales growth in the to-be-reported quarter. The Zacks Consensus Estimate for Botox is $1.0 billion.

Importantly, in May, Allergan gained FDA approval for the new indication of bipolar depression for Vraylar. Investors will be keen to know the contribution of this label expansion to sales of the drug in the second quarter.

Last month, Allergan announced that it has entered into a definitive transaction to be acquired by AbbVie, Inc. ABBV in a cash-and-stock deal with transaction value of nearly $63 billion. Questions on the proposed merger with AbbVie are expected on the second-quarter conference call.

Earnings Whispers

Our proven model shows that Allergan is likely to beat estimates in the soon-to-be-reported quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and 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 ($4.46 per share) and the Zacks Consensus Estimate ($4.30 per share), is +3.52%. 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 other large drug/biotech stocks that also have the right combination of elements to beat on earnings this time around:

AbbVie has an Earnings ESP of +0.12% and a Zacks Rank #2. The company is slated to release results on Jul 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bristol-Myers Squibb Company BMY has an Earnings ESP of +0.28% and a Zacks Rank #3. The company is scheduled to release results on Jul 25.

GlaxoSmithKline plc. GSK has an Earnings ESP of +1.31% and a Zacks Rank #3. The company is scheduled to release results on Jul 24.

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Bristol-Myers Squibb Company (BMY) : Free Stock Analysis Report
 
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Allergan plc (AGN) : Free Stock Analysis Report
 
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