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What's in Store for Conatus (CNAT) This Earnings Season?

Conatus Pharmaceuticals Inc. CNATis expected to report third-quarter 2017 results on Nov 1, after the market closes.

Conatus’ earnings history has been disappointing. The company surpassed expectations on one occasion only, missing in two and registering in-line results in another with an average negative surprise of 19.01%. Last quarter, the company delivered a negative surprise of 72.73%.

Conatus’ shares have decreased 11.6% so far this year. This compares unfavorably with the industry’s 22.7% registered increase during the period.

Let’s see how things are shaping up for the upcoming release.

Factors at Play

With no approved product in Conatus’ portfolio at the moment, the company is yet to generate revenues. Hence, investors’ focus will be on the company’s progress with emricasan, an orally active pan-caspase protease inhibitor.

Emricasan is currently under evaluation in various phase IIb studies for treatment of chronic liver disease including NASH fibrosis. With the initiation of ENCORE-LF clinical trial in May, there are now four ongoing emricasan phase IIb clinical studies. These include three ENCORE programs on patients with fibrosis or cirrhosis caused by nonalcoholic steatohepatitis (NASH) in various patient populations and a fourth ENCORE study on POLT-HCV-SVR patients.

In August, Conatus announced completion of enrollment in ENCORE-NF study. Data from all these studies are expected between 2018 and 2019.

The company also plans to soon initiate an additional study — ENCORE-XT — on emricasan under the ENCORE program.

Conatus has an exclusive option, collaboration and license agreement with Novartis AG NVS for the worldwide development and commercialization of emricasan. In July, the company announced that it has received an amount of $7 million from Novartis with the deal becoming effective. This amount is likely to benefit the company’s third-quarter revenues.

Operating expenses at the company, particularly research and development costs, are expected to rise due to continued investment toward the development of emricasan.

Earnings Whispers

Our proven model does not conclusively show that Conatus will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as you will see below.

Zacks ESP: Conatus has an Earnings ESP of -264.28%, representing the difference between the Most Accurate estimate of a loss of 17 cents and the Zacks Consensus Estimate of a loss of 5 cents.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Conatus currently carries a Zacks Rank #3, which increases the predictive power of the ESP. However, a company needs to have a positive ESP to be confident about an earnings surprise. Thus, this leaves the case inconclusive.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some health care stocks worth considering as per our model, these have the right combination of elements to beat estimates this quarter:

Emergent Biosolutions, Inc. EBS is scheduled to release results on Nov 2. The company has an Earnings ESP of +9.09% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zoetis Inc. ZTS is scheduled to release results on Nov 2. The company has an Earnings ESP of +0.57% and carries a Zacks Rank of 2 as well.

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Novartis AG (NVS): Free Stock Analysis Report
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Zoetis Inc. (ZTS): Free Stock Analysis Report
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