Endo International plc – Ordinary Shares (ENDP) Near-Term Challenges Offset 2Q Earnings Beat


Despite Endo International plc – Ordinary Shares (NASDAQ:ENDP) delivering a second-quarter earnings beat on Tuesday, with the management team forced to pull back on expectations for the year amid a slew of challenges facing the biotech firm, investors promptly were fleeing in the aftermath. Since Tuesday’s outlook chop, shares have amassed a 32% drop over the past three days, 5% of which were still falling just yesterday.

A number of factors are plaguing the company, including: The imminent closure of its Alabama manufacturing facility, the FDA requesting the removal of lead opioid painkiller Opana ER, the forthcoming divestiture of Somar, and an added U.S. mesh product liability claims settlement hitting Endo with $775 million. Meanwhile, management is expecting further pricing erosion with the base generic business to decline an additional 30% taking into account the removal of 15 products currently produced in the Alabama facility. With these challenges in mind, it is no wonder the stock has been suffering a steep decline since the start of this month.

Doing little to calm investors, management cut its expectations for 2017, now anticipating total revenues for the year to fall between $3.38 billion and $3.53 billion and top end at $3.35 billion, marking a 12% year over year dip. Furthermore, the company expects adjusted interest expenses to hit between $490 million to $500 million, a 9% to 12% year over year rise.

With the company reducing top and bottom-line forecasts, William Blair analyst Tim Lugo views “the earnings and guidance as a continuation of a larger financial reset for generics players following several quarters where pricing scrutiny, consortium pressure, and increased competition all weighed on the sector’s fundamentals.”

On a positive note, second quarter revenue met the analyst’s forecast of $876 million, while beating out consensus expectations of $836 million. ENDP performed nicely on the top-line in terms of generic U.S. revenues, rising above the consensus projection of $532 million to bring in $563 million for the quarter, though falling short of Lugo’s $608 million estimate. Additionally, another strength of the print for the company lies in its quarterly EPS, which rose to $0.93, up 8% year over year, beating both the analyst’s and the Street’s predictions of $0.80 and $0.72, respectively.

The analyst maintains a conservative and cautious outlook writing: “Given the decreases in near term outlook, we remain on the conservative side; we are unsure of the durability of several key franchises and are unsure of additional sources of growth for the company […] we are still wary of base-business erosion and the overall negative fundamentals of the U.S. generics industry. Despite the strong second-quarter results, we are worried that positive sentiment in the name could continue to sour due to lack of durability for key franchises and an unclear pathway to growth.”

Lugo reiterates a Market Perform rating for ENDP without suggesting a price target. (To watch Lugo’s track record, click here)

TipRanks analytics showcase ENDP as a Hold. Out of 13 analysts polled by TipRanks in the last 3 months, 3 are bullish on Endo stock while 10 are sidelined. With a potential upside of 73%, the stock’s consensus target price stands at $13.09.