Is Perrigo (PRGO) Poised to Beat Earnings Estimates? - Analyst Blog

Perrigo Company PRGO is set to report third quarter fiscal 2014 results on May 7 before the market opens. The company's fiscal year ends on the last Saturday of June every year. Last quarter, the company had delivered a positive earnings surprise of 16.87%. We expect the company to beat expectations in the fiscal third quarter as well.

Why a Likely Positive Surprise?

Our proven model shows that Perrigo 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 +0.65%. This is a very meaningful and leading indicator of a likely positive earnings surprise.

Zacks #3 Rank (Hold): 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 revisions.

The combination of Perrigo's Zacks Rank #3 and an earnings ESP of +0.65% makes us confident of an earnings beat on May 7.

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

Perrigo has delivered positive earnings surprises in three of the last four quarters with an average beat of 6.17%.

We note that this will be the second earnings report for the Dublin, Ireland-based Perrigo Company plc, formed following the Dec 2013 merger of Allegan, MI based Perrigo Company and Elan Corporation. The acquisition of Elan has boosted Perrigo's revenue stream as it is now eligible to receive significant royalties on multiple sclerosis drug Tysabri from Biogen Idec BIIB.

The generic (Rx Pharmaceuticals) segment of Perrigo, which has performed encouragingly in the last few quarters, is expected to continue performing well in the third quarter of fiscal year 2014 as well. Newly launched products have also boosted revenues at Perrigo over the last few quarters and are expected to do so again.

Other Stocks to Consider

Perrigo is not the only firm looking up this earnings season. Here are some other companies you may want to consider as our model shows that they have the right combination of elements − a positive Zacks Earnings ESP and a Zacks Rank #1, #2 or #3

Allergan Inc. AGN has an earnings ESP of +0.89% and holds a Zacks Rank #2 (Buy). Allergan will be reporting first quarter earnings on May 7 before the opening bell.

Xenoport, Inc. XNPT has an earnings ESP of +9.09% and holds a Zacks Rank #3. Xenoport will report first quarter earnings on May 8 after market closes.