Investors Can't Miss These 3 Pharma Stocks - Earnings ESP

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Investors Can't Miss These 3 Pharma Stocks

Things are definitely looking good for pharmaceutical companies this year on the back of product launches, restructuring activities and in-licensing deals. Several pharma companies have seen the worst of the patent cliff while for others there is a bright light at the end of the tunnel.

Companies like Forest Laboratories (FRX) and Eli Lilly (LLY) are bracing themselves for patent losses of key products in the forthcoming quarters. While Forest Labs' Namenda IR is likely to start facing generic competition early next year, Eli Lilly's Evista is slated to lose patent protection in a couple of months.

A common trend seen among big pharma companies struggling to come to terms with genericization is to acquire smaller players in the space. This trend is expected to continue among the companies yet to emerge from the patent cliff and those looking to strengthen their late-stage pipeline. Moreover, quite a few pharma giants have been selling their non-core assets in the last few years and will continue to do so in the coming years as well. For example, Bristol-Myers (BMY) is selling off its global diabetes business to long-time collaborator, AstraZeneca (AZN), to focus extensively on its existing portfolios comprising oncology, neurosciences, immunology, cardiovascular and virology.

The pharma companies are thus taking proactive measures to beat the generic wave and forge ahead. In fact, it is a good idea to zero in on a handful of pharma stocks that are poised to beat earnings estimates this quarter. An earnings beat should help these stocks gain investor confidence and show price improvement.

The Way to Pick Right Stocks

Given the huge number of industry participants, pinpointing stocks that have the potential to beat estimates could appear to be a daunting task, but our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank - Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) - and a positive Zacks Earnings ESP (Expected Surprise Prediction).

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Below are three pharma stocks we believe are best positioned to stand out this earnings season.

Sanofi ( SNY ), based in Paris, is engaged in developing and manufacturing pharmaceutical products, primarily for sale in the prescription drug market. The stock carries a Zacks Rank #3, with an Earnings ESP of +2.27%. The Zacks Consensus Estimate for the fourth quarter is 88 cents.

Although Sanofi could not deliver positive earnings surprises in the last three quarters, it looks poised to beat expectations in the fourth quarter. The company's diabetes franchise, like the last few quarters, is expected to deliver strong sales. However, genericization of several key drugs will keep affecting Sanofi's top line.

Sanofi will be reporting fourth quarter 2013 earnings on Feb 6.

AbbVie Inc. ( ABBV ) is a Zacks Rank #3 (Hold) stock with an Earnings ESP of +2.41%. The Zacks Consensus Estimate for the fourth quarter is 83 cents. In the past 7 days, estimates (on an average) have inched up a penny.

AbbVie, based in North Chicago, Ill., is engaged in the discovery, development, manufacturing and sale of proprietary pharmaceutical products. The company has delivered positive earnings surprises in the last three quarters and is expected to beat expectations in the fourth quarter as well.

Key growth driver Humira should continue with its strong performance in the fourth quarter. Other products like Synthroid, Creon and Duodopa are expected to do well.

AbbVie will be reporting fourth quarter 2013 earnings on Jan 31.

Allergan Inc. ( AGN ), based in Irvine, Calif., is a Zacks Rank #2 (Buy) stock with an Earnings ESP of +0.75%. The Zacks Consensus Estimate for the fourth quarter is $1.34.

Allergan is a global multi-specialty pharmaceutical company engaged in the development and commercialization of innovative products for eye care, neurological, medical aesthetics, medical dermatology, breast aesthetics, urological and other specialty markets. The company has delivered positive earnings surprises in three of the last four quarters with an average beat of 3.07%.

The company's specialty pharmaceuticals and eye-care pharmaceuticals segments are expected to do well in the fourth quarter. Allergan will be reporting fourth quarter 2013 earnings on Feb 5.

Bottom Line

While a number of pharma companies are seeing improvements in their financial results, there are others still facing tough challenges; the companies are nevertheless looking for better strategies to emerge as winners. A sneak peek at the space for some outperformers, backed by a solid Zacks Rank and a positive Zacks Earnings ESP, could be a great idea for investors to gain from this earnings season.


ABBVIE INC (ABBV): Free Stock Analysis Report

ALLERGAN INC (AGN): Free Stock Analysis Report

SANOFI-AVENTIS (SNY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Earnings

Referenced Stocks: ABBV , AZN , BMY , FRX , LLY

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