Advertisement

Will Arena Pharma (ARNA) Q3 Loss Be Wider than Expected?

Arena Pharmaceuticals, Inc. (ARNA) is scheduled to report its third-quarter 2014 results before the opening bell on Nov 3. Last quarter, the company had posted a negative earnings surprise of 9.09%. Let’s see how things are shaping up for this announcement.

Factors at Play This Quarter

Sales from Arena Pharma’s sole marketed product, Belviq, increased sequentially in the second quarter. The drug is expected to continue to grow in the third quarter as well.

We note that Arena Pharma has a collaboration agreement with Eisai Co., Ltd. (ESALY) for Belviq. In Jul 2014, the companies increased the drug’s sales force by over 200 sales specialists. Belviq sales in the third quarter are expected to reflect positive outcomes from this initiative.

However, Arena Pharma’s bottom line will continue to suffer from higher operating expenses. With Arena Pharma investing heavily in its pipeline, the company’s research and development expenses are expected to remain high in the third quarter.

Arena Pharma had recorded negative earnings surprises in the last three consecutive quarters. In the trailing four quarters, the company recorded an average negative earnings surprise of 43.79%.

Earnings Whispers?

Our proven model does not conclusively show that Arena Pharma is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.

Zacks ESP: Earnings ESP for Arena Pharma is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 13 cents per share.

Zacks Rank: Arena Pharma carries a Zacks Rank #3 (Hold). Though a favorable Zacks Rank increases the predictive power of the ESP, the company’s 0.00% ESP makes surprise prediction difficult.

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

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements.

Hospira Inc. (HSP) has an earnings ESP of +7.55% and carries a Zacks Rank #3. It is expected to report third-quarter results on Nov 6.

Actavis plc (ACT) has an Earnings ESP of +0.32% and holds a Zacks Rank #1 (Strong Buy). The company will report third-quarter results on Nov 5 before market opens.

Read the Full Research Report on ARNA
Read the Full Research Report on HSP
Read the Full Research Report on ESALY
Read the Full Research Report on ACT


Zacks Investment Research