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Is a Turnaround in Store for Teva (TEVA) in Q3 Earnings?

Teva Pharmaceutical Industries Ltd. TEVA will be reporting third-quarter 2017 earnings on Nov 2, before the market opens. Last quarter, the company delivered a negative earnings surprise of 8.11%.

This generic drug maker’s shares have lost 63.3% so far this year, while the industry witnessed a decrease of 28.7%.

Teva’s earnings have surpassed expectations in only one of the last four quarters, met the same in one and missed expectations in the remaining two, resulting in an average negative surprise of 1.66%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

A challenging environment in the U.S. generics business and continued deterioration in Venezuela have been hurting Teva’s sales.

The U.S. generics industry is facing significant competitive and pricing pressure, which have been affecting the company’s generic revenues. An increase in FDA generic drug approvals and ongoing customer consolidation are resulting in additional competitive pressure in the industry.

The challenges in the U.S. generics market are expected to hurt sales in the third quarter as well. In fact, at the Q2 conference call, management had said that the drug price erosion will accelerate in the second half of this year. Meanwhile, delay in the launch of some new generic drugs and increased competition for some others are also expected to hurt segment sales.

Meanwhile, in the Specialty segment, loss of exclusivity of key drugs like Copaxone, Azilect and Nuvigil will hurt sales. Sales of blockbuster multiple sclerosis (MS) treatment Copaxone are likely to erode due to lower volumes of the 20 mg formulation, which is facing generic competition. Glatopa, a generic version of Copaxone 20 mg, has been on the market since June 2015.

In fact, earlier this month, in a major blow to Teva, Mylan MYL launched its generic version of the 40 mg formulation, much earlier than expected. Mylan also launched a second generic version of Copaxone 20 mg formulation (once-daily).

Though these generic launches will not hurt Teva’s third-quarter sales and profits, Teva estimates that it will have a negative impact of at least 25 cents per share on fourth-quarter earnings.

Meanwhile, low-margin Anda distribution business and low margins in the Generic Medicines segment may hurt gross margins in the quarter.

Also, last month, Teva announced the appointment of Kåre Schultz as president and chief executive officer (CEO), thus ending its more than six-month long search for a permanent CEO. Schultz is likely to address Teva’s first conference call. We expect him to discuss his strategies to help the company regain lost ground.

Earnings Whispers

Our proven model does not conclusively show that Teva is likely to beat on earnings this quarter. This 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. That is not the case here, as you will see below.

Zacks ESP: Its Earnings ESP is -2.64% as the Most Accurate estimate stands at $1.03 per share while the Zacks Consensus Estimate is pegged higher at $1.06 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Stocks to Consider

Some stocks in the biotech/pharma sector that have a positive Earnings ESP and a favorable Zacks Rank are:

Agenus Inc. AGEN, scheduled to release results on Nov 7, has an Earnings ESP of + 8.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Clovis Oncology, Inc. CLVS, scheduled to release results on Nov 1, has an Earnings ESP of +2.01% and a Zacks Rank #2.

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Agenus Inc. (AGEN): Free Stock Analysis Report
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