Analysts were expecting Watson Pharmaceuticals Inc. (WPI) [Chart - News - Analysis] to report earnings of $0.65 for last quarter, but WPI beat expectations with actual earnings of $0.66---1 cent above the consensus estimate.

If you compare last quarter's earnings to the $0.47 the company made per share during the same quarter a year ago, you can see that WPI’s earnings are up this year.

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Also, if you compare WPI's 15.64% projected earnings-per-share (EPS) growth rate for the next five years with the projected EPS growth rate of 16.65% for the Drugs - Generic industry as a whole during that same time frame, you can see that analysts expect WPI to underperform the industry in the future---which is a bad sign for the stock.

Drilling down a little deeper into the Drugs - Generic industry, you can see how analysts believe WPI will stack up against some of the other stocks in the industry, like Hi Tech Pharmacal Co. Inc. (HITK) [Chart - News - Analysis] and Catalyst Pharmaceutical Partners Inc. (CPRX) [Chart - News - Analysis], in the future. Analysts believe HITK's earnings are going to grow at a rate of 20.00% while CPRX's earnings are going to grow at a rate of 0.00%.

Earnings season can be a volatile time in the stock market. Check out these videos and articles to be better prepared to take advantage of the large price moves that tend to accompany earnings announcements.

- Earnings Season is Here - Find Out How to Trade It

- Using Options to Trade Earnings

- Understanding Stock Analyst Research and Recommendations

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Merriman gave the Drugs - Generic industry some good news as it announced an upgrade on one of its stocks.

Catalyst Pharmaceutical Partners Inc. (CPRX) [Chart - News - Analysis] was upgraded from Sell » Neutral on 10/1/2009---a positive sign for the stock that investors typically welcome. FYI, Merriman uses the following rating scale when analyzing stocks: Buy, Neutral, Sell.

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Catalyst Pharmaceutical Partners Inc. has an average analyst recommendation score of 3.7 and competes for investment dollars with Mylan, Inc. (MYL) [Chart - News - Analysis] and Watson Pharmaceuticals Inc. (WPI) [Chart - News - Analysis]---two other stocks in the Drugs - Generic industry that have average analyst recommendation scores of 2.2 and 2.8 respectively.

Analyst recommendations are averaged and scored using the following rating scale:

- 1.0 = Strong Buy

- 2.0 = Buy

- 3.0 = Hold

- 4.0 = Sell

- 5.0 = Strong Sell

Why are Upgrades and Initiations Good and Downgrades Bad?

One event that is almost certain to get a reaction from Wall Street is an analyst upgrade or downgrade. Everyone is looking for an edge in the stock market, and quite often, traders turn to stock analysts to get that edge.

Upgrades and coverage initiations are typically good for stocks because they show that analysts either believe that the stock is going to perform better in the future or that the stock is worth covering and providing analysis on.

Downgrades are typically bad for stocks because they show that analysts believe that the stock is going to perform worse in the future.

What is a Stock Analyst?

Check out the Understanding Stock Analyst Research and Recommendations video and article for more info.

A stock analysts is a person---typically employed by a large bank, investment firm or analysis company---who devotes his/her life to learning and making predictions about a company and its future performance.

Stock analysts sift through company reports and filings, talk to company management, probe customers and competitors and basically do whatever they can to find out if a company is healthy and growing or sick and shrinking. Because this is incredibly demanding work, stock analysts typically only monitor one or two companies at a time.

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