Earnings Preview: Forest Labs - Analyst Blog
October 14 2011 - 6:45AM
Zacks
Forest Labs (FRX) is all set
to announce its second quarter fiscal 2012 results on October 18.
The Zacks Consensus Estimate for the second quarter is 98 cents,
representing a year-over-year decline of 2%.
First Quarter Fiscal 2012 Highlights
Forest Labs reported strong earnings in the first quarter,
beating the Zacks Consensus Estimate by a huge margin. Earnings
came in at $1.04 for the first quarter of fiscal 2012, easily
beating the Zacks Consensus Estimate of 96 cents and the
year-earlier earnings of 95 cents. Results were boosted by higher
revenues, lower R&D expenses and lower share count.
First quarter revenues increased 7.9% to $1.15 billion, with net
sales increasing 8.2% to $1.1 billion. Total revenues topped the
Zacks Consensus Estimate of $1.11 billion.
While Lexapro revenues increased 3.6% to $585.7 million,
Namenda, which is approved for the treatment of moderate and severe
Alzheimer’s disease, delivered sales of $319.9 million, recording a
year-over-year growth of 3.9%.
Other products like Bystolic and Savella also performed well.
Savella posted sales of $25.8 million, up 25.6% from the
year-earlier period. New products include Teflaro (treatment of
patients suffering from acute bacterial skin and skin structure
infection and community acquired bacterial pneumonia), Daliresp
(treatment of chronic obstructive pulmonary disease), and Viibryd
(for the treatment of major depressive disorder).
Agreement of Estimate Revisions
Over the past seven days, 2 of the 21 analysts covering Forest
Labs have reduced their estimates for the second quarter of fiscal
2012. Only one analyst has moved in the opposite direction during
this time-period.
Magnitude of Revisions & Earnings
Surprise
Second quarter fiscal 2012 estimates have gone down by a penny
in the last seven days. The Zacks Consensus Estimate for the second
quarter currently stands at 98 cents.
Forest Labs has consistently surpassed expectations over the
past four quarters with an average earnings surprise of 13.4%.
Forest Labs is, however, expected to deliver below expectations in
the second quarter of fiscal 2012. The company is expected to
deliver a negative earnings surprise of 1.02%. Concerns remain that
Namenda sales may lag expectations.
Recommendation
We currently have a Neutral recommendation on Forest Labs, which
carries a Zacks #3 Rank (short-term “Hold” rating). We remain
concerned about long-term growth at Forest Labs, especially from
2012 when Lexapro is exposed to generic competition. While Bystolic
and Savella should be very meaningful contributors by that time, we
believe that their combined sales will not be enough to compensate
for the loss of Lexapro sales. Namenda will face generic
competition in early 2015 this puts another $1+ billion at
risk.
Given the situation, we believe that Forest will continue to
seek in-licensing and acquisition activities to grow its pipeline.
Forest Labs has made significant progress in this regard and should
be on the lookout for additional deals in the next couple of years.
Products in Forest Labs' portfolio face competition from companies
like Pfizer (PFE) and Eli Lilly
(LLY) among others.
FOREST LABS A (FRX): Free Stock Analysis Report
LILLY ELI & CO (LLY): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
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