Will Higher Expenses Hurt Intrexon (XON) Earnings in Q3?

Intrexon Corporation (XON) is set to report third-quarter 2014 results on Nov 13. Last quarter, the company reported a loss of 31 cents per share against the Zacks Consensus Estimate of a loss of 20 cents. Let us see how things are shaping up for this announcement.

Factors to Consider

Intrexon operates in a technology-driven environment where success depends on the use of new technology, new product development and product upgrades. The company has been successful on the R&D front as evident from the sequential expansion in its top line.

However, on the R&D front, expenses are expected to increase in the third quarter due to Intrexon’s efforts to broaden and improve its product base in a crowded market alongside players like ICON Public Limited Company (ICLR) and BioTelemetry, Inc. (BEAT).

Moreover, the company’s acquisition of Trans Ova Genetics, an industry-leading provider of bovine reproductive technologies and the largest producer and supplier of bovine embryos in the United States, in August is unlikely to show results this year. It should however be accretive to earnings per share thereafter.

The increasing cost of sales and higher overhead costs have been putting pressure on margins. The company has failed to generate profits in the past few quarters. Conditions are not expected to improve in the to-be-reported quarter either.

Overall activities of Intrexon during the third quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate deteriorated to a loss of 28 cents from a loss of 11 cents per share over the last 90 days.

Earnings Whispers?

Our proven model does not conclusively show that Intrexon is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Zacks ESP: Intrexon’s Earnings ESP stands at 0.00%.

Zacks Rank: Intrexon has a Zacks Rank #3 (Hold). Though this increases the predictive power of ESP, the company’s ESP of 0.00% 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.

Stock to Consider

Here is one company that can be considered as it has the right combination of elements to post an earnings beat this quarter:

Mallinckrodt Public Limited Company (MNK), with Earnings ESP of +5.22% and a Zacks Rank #2 (Buy).

Read the Full Research Report on BEAT
Read the Full Research Report on MNK
Read the Full Research Report on XON
Read the Full Research Report on ICLR


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