GlaxoSmithKline (GSK) is scheduled to report third-quarter 2014 results on Oct 22. Last quarter, the company posted a negative earnings surprise of 8.45%. The company has recorded negative earnings surprises in three out of the four trailing quarters with an average miss of 3.50%. Let’s see how things are shaping up for this announcement.

Factors at Play

Glaxo is facing generic competition for several of its key drugs which has put significant pressure on the company. The impact of generic competition for Lovaza was much stronger than expected. Meanwhile, products like Valtrex, Seroxat/Paxil, Zeffix, Combivir and Trizivir are facing declining sales due to intense generic competition.

In addition to facing generic competition, most of Glaxo’s products are up against stiff competition. Advair, one of its top revenue grossers (which generated almost 25% of Glaxo’s Pharmaceuticals and Vaccines revenues in the second quarter), is facing tough competition in the chronic obstructive pulmonary disease and asthma market from AstraZeneca (AZN) and Merck & Co. Inc.’s (MRK) respiratory disease drugs.

Meanwhile, Glaxo has been found guilty of bribing non-government personnel by the Changsha Intermediate People’s Court in Hunan Province, China. The court levied a fine of £297 million (approximately $484 million). Glaxo’s sales in China have been suffering since the bribery charges came to light. In the second quarter, investigations in China adversely impacted Emerging Markets Pharmaceuticals and Vaccines sales growth by approximately 4%.

Earnings Whispers?

Our proven model does not conclusively show that Glaxo is likely to beat earnings 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 Glaxo is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 79 cents per share.

Zacks Rank: Glaxo carries a Zacks Rank #5 (Strong Sell).

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.

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat.

The earnings ESP for Ligand Pharmaceuticals Inc. (LGND) is +30.00% and it carries a Zacks Rank #1 (Strong Buy). The company is scheduled to release third-quarter results on Oct 27.

Vertex Pharmaceuticals Inc. (VRTX) has an earnings ESP of +28.07% and carries a Zacks Rank #3. It is expected to report third-quarter results on Oct 28.

Read the Full Research Report on VRTX
Read the Full Research Report on AZN
Read the Full Research Report on GSK
Read the Full Research Report on MRK
Read the Full Research Report on LGND


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