Will Forest Laboratories, Inc. (FRX) Beat Earnings Again?

Will Forest Laboratories, Inc. (FRX) Beat Earnings Again?
By Forest Laboratories, Inc. (Forest Laboratories, Inc.) [Public domain], via Wikimedia Commons

Forest Laboratories, Inc. (NYSE:FRX) is scheduled to report its third quarter fiscal 2014 (ended Dec 31, 2013) earnings before the opening bell on Jan 21.

This company has seen a nice streak of earnings beats in the last three quarters. We expect the trend to continue in the reporting quarter as well.

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Why a Likely Positive Surprise?

Our proven model shows that Forest Labs is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +33.33%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #2 (Buy): Note that stocks with a Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings estimates. 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.

The combination of Forest Labs’ Zacks Rank #2 and an ESP of +33.33% makes us confident of an earnings beat on Jan 21.

What is Driving Earnings?

Bystolic, a key growth driver at Forest Labs, should continue performing well in the third quarter of fiscal 2014. Higher prescription volume should drive Bystolic’s revenues. We expect to see double-digit growth in the product’s sales. Apart from Bystolic, Namenda, which was underperforming sometime back, could see an improvement in its performance with users shifting to the Namenda XR (launched in Jun 2013) formulation from the IR formulation.

Meanwhile, Forest Labs has been very active in launching new products over the last few quarters. The company has launched a number of products including Teflaro, Daliresp (chronic obstructive pulmonary disease – COPD), Tudorza (COPD), Viibryd (major depressive disorder – MDD), Linzess (constipation-predominant irritable bowel syndrome and chronic constipation) and Fetzima (MDD). Better-than-expected performance of these new products will drive the top line.

Lower operating costs (selling and general expenses and research and development cost) should also boost earnings.

Other Stocks to Consider

Forest Labs is not the only company looking up this earnings season. We also see likely earnings beat coming from these companies:

Actavis (ACT) has an earnings ESP of +1.33% and holds a Zacks Rank #1 (Strong Buy). Actavis will be reporting fourth quarter earnings on Feb 20 before the market opens.

Johnson & Johnson (JNJ) is a Zacks Rank #3 (Hold) stock with an earnings ESP of +0.83%. Johnson & Johnson is expected to report fourth quarter 2013 results on Jan 21 before the market opens.

Sanofi (SNY) has earnings ESP of +2.27% and holds a Zacks Rank #3. Sanofi will report fourth quarter 2013 results before the market opens on Feb 6.

ACTAVIS PLC (ACT): Free Stock Analysis Report

FOREST LABS A (FRX): Free Stock Analysis Report

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report

SANOFI-AVENTIS (SNY): Free Stock Analysis Report

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