Watson Pharmaceuticals: Earnings Preview

Jul.24.12 | About: Allergan plc (AGN)

Watson Pharmaceuticals Inc. (WPI) is set to unveil its second quarter 2012 results on July 26, 2012 before the start of trading. The Zacks Consensus Estimate for the quarter is $1.38 per share, representing a year-over-year increase of 36.6%.

First Quarter Highlights

Watson Pharma's first quarter 2012 earnings (excluding special items) of $1.64 per share surpassed the Zacks Consensus Estimate by 4 cents and the year-ago earnings by 75 cents. Double-digit revenue growth helped boost earnings.

Revenues for the reported quarter came in at $1.52 billion, beating the Zacks Consensus Estimate of $1.48 billion and significantly above the year-ago revenues of $876.5 million. All segments contributed to the quarterly revenue growth.

Agreement of Estimate Revisions

Of the 20 analysts following the stock, three analysts trimmed their second quarter 2012 earnings estimates, with a sole upward movement. Over the last 7 days, two analysts revised their estimates, one in either direction. Over the last 30 days, three analysts trimmed fiscal 2012 estimates with a sole upward movement. The last 7 days saw two analysts slashing their earnings estimates, while one moved in the opposite direction.

Magnitude of Estimate Revisions

The second quarter fiscal 2012 estimates have gone down by a penny in last 30 days to $1.38 per share. The Zacks Consensus Estimate for 2012 increased by a penny over the last 30 days. The Zacks Consensus Estimate for 2012 currently stands at $5.75 per share, which is towards the higher end of the earnings guidance range of $5.55 to $5.80 per share provided by the company. Both second quarter and fiscal 2012 estimates remained stationary in the last 7 days.

Earnings Surprise

Watson Pharma has surpassed earnings estimates in all of the last four quarters. The company recorded a maximum positive surprise of 3.81% in the third quarter of 2011. On average, the earnings surprise was 2.11%.

Recommendation

We currently have a Neutral recommendation on Watson Pharma, which carries a Zacks #2 Rank (short-term Buy rating). Watson continues to pursue acquisitions to drive growth. We are positive on the upcoming Actavis acquisition, which should be immediately accretive to earnings.