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Conatus (CNAT): Can the Stock Surprise in Q1 Earnings?

Conatus Pharmaceuticals Inc. CNAT is scheduled to report first-quarter 2016 results on May 5, before the market opens.

Over the four trailing quarters, Conatus has posted an average earnings surprise of 7.58%, having beaten estimates in two quarters, while posting in-line results in one. Last quarter, the company posted a positive earnings surprise of 25.00%.



Let’s see how things are shaping up for the first quarter of 2016.

Factors at Play

Conatus, a development-stage biotech company, is focused on the development and commercialization of treatments targeting liver disease. The company’s lead candidate, emricasan, a first-in-class, orally active pan-caspase protease inhibitor, is being developed for the treatment of patients with chronic liver disease.

Emricasan is currently being evaluated in the POLT-HCV-SVR study (phase IIb) in post-orthotopic liver transplant (POLT) recipients with liver fibrosis or cirrhosis post-transplant as a result of recurrent hepatitis C virus (HCV) infection, who have successfully achieved a sustained viral response (SVR) following HCV antiviral therapy; ENCORE-NF study (phase IIb) in patients with liver fibrosis resulting from nonalcoholic steatohepatitis (NASH); and the Liver Cirrhosis (LC) study in patients with LC and model for end-stage liver disease scores of 11 to 18.

In the first quarter, Conatus reported encouraging three-month data from the LC study on emricasan. Meanwhile, six-month data from the study is expected in the second quarter of 2016.

Emricasan has Fast Track status in the U.S. for the treatment of LC caused by NASH. With this designation, combined with additional communications from the FDA recommending single etiology studies, the company plans to focus on an initial registration of emricasan for NASH cirrhosis, as well as a registration for NASH fibrosis.

With no approved product in Conatus’ portfolio at the moment, investor focus is expected to remain on the company’s progress on emricasan. Conatus plans to initiate a number of studies on emricasan.

What Our Model Indicates

Our proven model does not conclusively show that Conatus is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% since the Most Accurate estimate is in line with the Zacks Consensus Estimate of a loss of 35 cents.

Zacks Rank: Although the company’s Zacks Rank #3 enhances the predictive power of the ESP, its 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are some health care stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter.

The Earnings ESP for Zoetis Inc. ZTS is +2.44% and it carries a Zacks Rank #3. The company is scheduled to release results on May 4.

The Earnings ESP for Impax Laboratories Inc. IPXL is +8.89% and it carries a Zacks Rank #3. The company is scheduled to release results on May 10.

The Earnings ESP for Jazz Pharmaceuticals Public Limited Company JAZZ is +6.11% and it carries a Zacks Rank #3. The company is scheduled to release results on May 10.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
JAZZ PHARMACEUT (JAZZ): Free Stock Analysis Report
 
IMPAX LABORATRS (IPXL): Free Stock Analysis Report
 
CONATUS PHARMA (CNAT): Free Stock Analysis Report
 
ZOETIS INC (ZTS): Free Stock Analysis Report
 
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