Earnings Preview: Forest Labs - Analyst Blog
July 13 2011 - 12:51PM
Zacks
Forest Labs (FRX) is all set to announce its
first quarter fiscal 2012 results on July 19. The Zacks Consensus
Estimate for the first quarter is 96 cents, a penny above the
year-ago earnings of 95 cents.
Fourth Quarter Fiscal 2011 Highlights
Forest Labs reported strong earnings in the fourth quarter of
$1.12, easily beating the Zacks Consensus Estimate of $1.08 and the
year-earlier earnings of 83 cents. Strong Namenda sales, lower
R&D expenses and lower share count boosted earnings.
Total revenues increased 7.8% to $1.14 billion with net sales
increasing 9.7% to $1.09 billion. Total revenues topped the Zacks
Consensus Estimate of $1.10 billion.
While Lexapro revenues increased 6.9% to $594.8 million,
Namenda, which is approved for the treatment of moderate and severe
Alzheimer’s disease, delivered sales of $329 million, recording a
growth of 10.5% from the year-earlier period.
Improved patient access and increased promotional efforts should
help keep Namenda sales strong. Moreover, Forest Labs gained FDA
approval in June 2010 for Namenda XR, a 28 mg once-daily
extended-release formulation. Namenda XR received approval for the
treatment of moderate to severe dementia of the Alzheimer’s
type.
Bystolic, Forest Labs’ beta-blocker for the treatment of
hypertension, posted sales of $73.1 million, up 37.7%. Savella,
which is approved for the management of fibromyalgia, posted sales
of $23.7 million, up significantly from the year-earlier sales of
$17.4 million.
With Lexapro slated to lose exclusivity on March 14, 2012,
Forest Labs provided much-awaited guidance for fiscal 2012. The
company expects earnings in the range of $3.60 to $3.70 on total
revenues of $4.5 billion (up 3%). Net sales are expected to grow
4.5% to $4.4 billion in fiscal 2012. Lexapro sales are expected to
decline 10% to just over $2 billion in fiscal 2012.
Agreement of Estimate Revisions
Over the past seven days, only one of the 25 analysts following
Forest Labs reduced an estimate for the first quarter with no
movements in the opposite direction. Over the past 30 days, only
one analyst raised an estimates for the first quarter as well as
for fiscal 2012. Only one analyst pulled back for the first quarter
in the past 30 days.
Magnitude of Revisions & Earnings
Surprise
The magnitude of revisions is negligible over the past 30 days
for the first quarter as well as for fiscal 2012. The Zacks
Consensus Estimate for the first quarter currently stands at 96
cents. Forest Labs has exceeded expectations over the past four
quarters with an average earnings surprise of 13.9%.
For the first quarter, Forest Labs is expected to deliver a
positive earnings surprise of 4.17%. Forest Labs will continue
repurchasing shares in fiscal 2012, which should drive the
bottom-line. The company has authorization to purchase an
additional 38.8 million shares.
Recommendation
We currently have a Neutral recommendation on Forest Labs, which
carries a Zacks #3 Rank (short-term “Hold” rating). While products
like Namenda, Bystolic and Savella should continue performing well,
we remain concerned about long-term growth at Forest Labs,
especially from 2012 when Lexapro is exposed to generic
competition. That puts a lot of pressure on the pipeline to come
through.
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