FRX Forest Road Acquisition Corp

Following the release of fourth quarter and fiscal 2012 results, most of the analysts covering Forest Laboratories (FRX) have made downward revisions to their earnings estimates for fiscal 2013. The downward revision in estimates is mainly in response to the company’s earnings guidance for fiscal 2013.

Fourth Quarter and Fiscal 2012 Quarter Highlights

Forest Labs reported earnings per share of 72 cents in the fourth quarter of fiscal 2012, a penny above the Zacks Consensus Estimate. Fourth quarter fiscal 2012 earnings, however, came in below the year-earlier earnings of $1.12 per share. Results were hit by the loss of exclusivity on Lexapro. Excluding acquisition-related amortization, earnings came in at 78 cents.

Fourth quarter revenues declined 7.3% to $1.01 billion, with net sales falling 8.7% to $996 million. Total revenues, however, topped the Zacks Consensus Estimate of $980 million.

Full-year earnings came in at $3.72 per share, a penny above the Zacks Consensus Estimate. Earnings, however, declined 15.6% from the year-ago period. Revenues, which topped the Zacks Consensus Estimate of $4.5 billion, increased 3.8% to $4.6 billion.

A detailed discussion of fourth quarter and fiscal 2012 results is available here: Forest Hit by Lexapro Generics

Agreement of Estimate Revisions

There is a significant negative bias in earnings estimate revisions for Forest Labs for fiscal 2013. Following the release of fourth quarter and fiscal 2012 results, 16 of the 19 analysts following the stock lowered their estimates for fiscal 2013 with only two analysts moving in the opposite direction.

However, where fiscal 2014 is concerned, 11 of the 24 analysts following Forest Labs raised their estimates with 7 analysts moving in the opposite direction.

Forest Labs expects fiscal 2013 earnings in the range of $0.90 - $1.05 per share ($1.20 - $1.35 excluding acquisition-related amortization) on total net revenue of $3.4 billion.

Magnitude of Revisions

Estimates for fiscal 2013 have gone down by 21 cents following the release of fourth quarter and fiscal 2012 results. The current Zacks Consensus Estimate of 95 cents is within Forest Labs’ guidance of $0.90 - $1.05 per share. Fiscal 2014 estimates are up 2 cents to $1.64 per share.

Our Recommendation

We currently have a Neutral recommendation on Forest Labs, which carries a Zacks #3 Rank (short-term Hold rating). Forest Labs is facing tough times with Lexapro losing patent protection.

We believe that Forest Labs will continue to seek in-licensing and acquisition deals to grow its pipeline. We expect investor focus to remain on the sales ramp of new products. Forest Labs will be facing another patent cliff in early 2015 when Namenda will lose patent protection, putting $1+ billion at risk.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at  http://www.zacks.com/education/

 
FOREST LABS A (FRX): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research