Mylan: Earnings Preview

| About: Mylan Inc (MYL)
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Mylan Inc. (NASDAQ:MYL) is all set to announce its second quarter 2011 results before the opening bell on July 27, 2011. The Zacks Consensus Estimate for the second quarter of 2011 is 45 cents, representing a year-over-year estimated increase of 22.2%.

The performance of Mylan has fluctuated over the last four quarters with the company meeting estimates in two of the past four quarters. The generic player surpassed the Zacks Consensus Estimate in the third quarter of 2010 and missed the estimates in the second quarter of 2010. The trailing four-quarter average is -0.13%. For the second quarter, Mylan is expected to deliver a positive earnings surprise of 4.44%.

First Quarter 2011 Recap

Mylan’s first quarter 2011 earnings (excluding special items) of 44 cents per share were in line with the Zacks Consensus Estimate. A higher tax rate, increased share count and pricing pressure in Europe offset the increase in generics revenue in North America to deliver in line earnings growth. Earnings were nevertheless 22% above year-ago earnings of 36 cents per share.

Total revenues at Mylan climbed 12.1% over the prior year to $1.45 billion driven by increased sales of generic drugs. Revenue was also barely above the Zacks Consensus Estimate of $1.44 billion. Total revenues comprises of both net revenues and other revenues from third parties.

Agreement of Estimate Revisions

Estimate revisions for Mylan have been scarce over the past month; only 4 of 15 analysts covering Mylan for the second quarter of 2011 have revised their earnings estimates. While 3 analysts have upped estimates, 1 moved in the opposite direction.

There is a significant upward bias for fiscal 2011 with 4 of 17 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 Mylan has over 1,500 products filed around the globe with the company expecting to launch 500 products globally in 2011. We expect the generic segment will post strong sales in the latter half of the year benefiting from major launches in the first half. Moreover, Mylan’s deep pipeline is encouraging. The candidates, on approval, should drive growth at Mylan.

Magnitude of Estimate Revisions

Consensus estimates for the both the second quarter of 2011 as well as full year 2011 have remained static over the last 30 days due to a lack of significant estimate revisions by the analysts following the stock. The current Zacks Consensus Estimates for the second quarter and fiscal 2011 are 45 cents and $2.00, respectively.

Neutral on Mylan

We currently have a Neutral recommendation on Mylan. The stock caries a Zacks #3 Rank (short-term ‘Hold’ rating). Mylan is one of the leading players in the US generics market. The company, which competes with generic players like Teva Pharmaceutical Industries Limited (NYSE:TEVA) and Watson Pharmaceuticals Inc. (WPI), is certainly to reap the benefits of patent lapses going ahead.

However, we remain concerned about lackluster growth in the European generics business. We maintain our Neutral stance until we get better visibility on the top-line growth prospects in Europe. We also prefer to remain on the sidelines until we are surer about the impact of new product launches on performance in the second half of 2011.