Will Forest Labs (FRX) Keep Its Earnings Streak Alive? - Analyst Blog

Forest Laboratories Inc. FRX is scheduled to report fourth quarter fiscal 2014 results before the opening bell on Apr 29.

Last quarter, Forest Labs had posted an earnings surprise of +350%. We expect the company to beat expectations in the fourth quarter as well.

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 +9.09%. This is a very meaningful and leading indicator of a likely positive earnings surprise.

Zacks #3 Rank (Hold): 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 Forest Labs' Zacks Rank #3 (Hold) and an earnings ESP of +9.09% make us confident of an earnings beat on Apr 29.

What is Driving Better-than-Expected Earnings?

Forest Labs has delivered positive earnings surprises in the last four quarters with an average beat of 213.55%.

Although Lexapro is facing generic competition, drugs like Namenda, Bystolic, Teflaro, Tudorza and newly launched Fetzima should help offset the impact of genericization. Saphris, relaunched in Feb 2014, should also contribute to revenues.

Meanwhile, cost-cutting efforts should boost the bottom line.

We remind investors that Actavis plc ACT announced its intention to acquire Forest Labs for a cash and equity transaction valued at about $25 billion. The deal is expected to close in mid-2014.

Other Stocks to Consider

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

Teva Pharmaceutical Industries Ltd. TEVA has an Earnings ESP of +0.82% and holds a Zacks Rank #2 (Buy). Teva will report first quarter earnings on May 1.

Vertex Pharmaceuticals Inc. VRTX has an Earnings ESP of +5.63% and holds a Zacks Rank #2. Vertex Pharma will report first quarter earnings on May 1.

Actavis has an Earnings ESP of +3.34% and holds a Zacks Rank #2. Actavis will report first quarter earnings on Apr 30.