Is Mallinckrodt (MNK) Poised to Beat Q4 Earnings Estimates? - Analyst Blog

Mallinckrodtplc ( MNK ) is set to report fourth-quarter fiscal 2014 results on Nov 19. Last quarter, the company had posted a positive earnings surprise of 39.5%. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise ?

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

Positive Zacks ESP : The Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +9.70%. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank : Mallinckrodt is a Zacks Rank #2 (Buy) stock. Note that stocks with 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 Mallinckrodt's Zacks Rank #2 and an Earnings ESP of +9.70% makes us confident of an earnings beat.

What's Driving the Better-than-Expected Earnings?

FDA approval for new drugs in the past few months has expanded Mallinckrodt's product portfolio and should drive growth. In Mar 2014, the FDA had approved Mallinckrodt's new drug application for Xartemis XR for the management of acute pain severe enough to require opioid treatment. In Jan 2014, Mallinckrodt had received FDA approval for Pennsaid 2% (topical non-steroidal anti-inflammatory drug [NSAID]) for the treatment of pain associated with osteoarthritis of the knee.

Moreover, Mallinckrodt has been making strategic acquisitions in fiscal 2014 to expand its portfolio. The Cadence Pharmaceuticals acquisition has added Ofirmev to the company's specialty pharmaceuticals portfolio and expanded its pain management franchise. The Questcor acquisition, on the other hand, has added Acthar Gel to its portfolio, which is currently approved for 19 indications. We expect these acquisitions to boost the top line in the coming quarters.

Other well-placed stocks in the health care sector include Biogen Idec ( BIIB ), Impax Laboratories Inc. ( IPXL ) and Mylan, Inc. ( MYL ). All three carry a Zacks Rank #1 (Strong Buy).

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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 Nasdaq, Inc.

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

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