Mylan: Earnings Preview

Apr.27.11 | About: Mylan Inc (MYL)

Mylan Inc. (NASDAQ:MYL) is all set to announce its first quarter 2011 results before the opening bell on May 3, 2011.

The Zacks Consensus Estimate for the first quarter of 2011 is $0.44, representing a year-over-year increase of 22.2%.

The performance of Mylan has fluctuated over the last four quarters. The company surpassed estimates in two of the four quarters of 2010. The generic player missed the Zacks Consensus Estimate in the second quarter of 2010 and delivered in-line results in the final quarter of 2010. The trailing four-quarter average is 1.88%. Mylan is expected to miss the Zacks Consensus Estimate in the first quarter of 2011.

Fourth quarter 2010 recap

Mylan Inc.’s fourth quarter 2010 earnings (excluding special items) of $0.45 per share were in line with the Zacks Consensus Estimate, but well above the year-ago earnings of $0.33 per share. Increased revenues led to the rise in earnings in the final quarter of 2010. On a reported basis (including special items), Mylan earned $0.01 per share like a year ago. (Read our full coverage of the earnings report at Mylan EPS In Line, but Sales Miss)

Agreement of Estimate Revisions

Estimate revisions for Mylan have been scarce over the past month; only 3 of 15 analysts covering Mylan for the first quarter of 2011 have revised their earnings estimates. While 2 analysts have upped estimates, one estimate moved in the opposite direction.

There is a significant upward bias for fiscal 2011 with 5 of 18 analysts revising estimates upwards. No downward movement has been witnessed over the past month. We believe that the upward bias is attributable to Mylan’s dominant position in the generics market, which is likely to grow stronger as several blockbuster drugs are slated to lose patent protection in the coming quarters.

We note that Mylan has over 1,500 products filed across the globe. The company expects to launch 500 products across the globe in 2011. With more than 300 product launches slated for the first half of 2011, we expect the generic segment to post strong sales in the latter half of the year. Moreover, Mylan’s deep pipeline is encouraging. The candidates, on approval, should drive growth at Mylan.

Magnitude of Estimate Revisions

Estimates for the first quarter of 2011 have remained static over the last 30 days due to the lack of significant estimate revisions by the analysts following the stock. Estimates for 2011 have gone up by $0.02 to $2.01 over a similar time period.

Neutral on Mylan

We currently have a Neutral recommendation on Mylan, which is supported by a Zacks #3 Rank (short-term 'Hold' rating). The company, which competes with generic players like Teva Pharmaceutical Industries Limited (NYSE:TEVA) and Watson Pharmaceuticals Inc. (WPI), holds immense potential in the generics market, as many blockbuster drugs are slated to lose patent exclusivity in the upcoming years. However, we remain concerned about the lack of growth in the European generics business.