Ligand (LGND) Q4 Earnings: Will the Stock Pull a Surprise?

Ligand Pharmaceuticals IncorporatedLGND is scheduled to report fourth-quarter 2016 results on Feb 23, after the market closes . Ligand's earnings history is mixed as it missed expectations in two of the last four quarters. Overall, the company had an average negative surprise of 5.01% in the trailing four quarters.

However, Ligand's shares outperformed the Zacks classified Medical-Biomedical and Genetics industry. Shares of the company gained 15.5% in the last one year, while the industry recorded an increase of 5.6%.

In the last reported quarter, Ligand posted a negative earnings surprise of 66.67%. Let's see how things are shaping up for this announcement.

Ligand Pharmaceuticals Incorporated Price and EPS Surprise

Ligand Pharmaceuticals Incorporated Price and EPS Surprise | Ligand Pharmaceuticals Incorporated Quote

Factors at Play

Ligand generates revenues through royalties, license and milestone payments, as well as the sale of Captisol material. The company's Captisol formulation technology has resulted in its partnerships with several leading healthcare companies like Novartis AG NVS and Amgen that provide it with funds in the form of milestone and royalty payments. Royalties depend on the sales of its two key partnered assets - Kyprolis and Promacta. Sales of the Captisol material, on the other hand, are contingent upon the timing of its purchase for clinical and commercial use.

For the fourth quarter, Ligand expects earnings in the range of $1.29-$1.36 per share on revenues of $39-$43 million (including approximately royalty revenues of $19 million). The quarterly revenue pattern at Ligand over the past couple of years shows that the fourth quarter is usually stronger than the rest due to royalties and ordering patterns of Captisol for commercial use.

Fourth-quarter royalties are expected to be driven by Promacta and Kyprolis sales. The recently launched Evomela should add to sales.

However, Captisol sales are expected to decline due to the timing of certain regulatory and clinical events.

Operating expenses vary on a quarterly basis depending mainly on the timing of costs associated with internal programs and business development activities.

We expect investor focus to remain on updates on the company's partnerships and major pipeline assets at the fourth-quarter conference call.

Earnings Whispers

Our proven model does not conclusively show that Ligand is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP for Ligand is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.02. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Liganda has a Zacks Rank #2. Though the company's favorable Zacks Rank increases the predictive power of ESP, its 0.00% Earnings ESP makes surprise prediction difficult.

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

Stocks That Warrant a Look

Here are a couple of health care stocks that you may want to consider, as our model shows that this have the right combination of elements to post an earnings beat this quarter.

Pacira Pharmaceuticals, Inc. PCRX is expected to release results on Feb 23. The company has an Earnings ESP of +20% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Exact Sciences Corporation EXAS has an Earnings ESP of +5% and a Zacks Rank #2. The company is expected to release results on Feb 21.

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Novartis AG (NVS): 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 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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