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4 Drug Stocks Poised to Beat this Earnings Season

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This earnings season started on a promising note for the pharma/biotech sector after a challenging 2016. The sector has been going through a rough patch due to media and political focus on steep drug pricing issues. Interestingly, the NASDAQ Biotechnology Index (^NBI) and the NYSE ARCA Pharmaceutical Index (^DRG) gained 9.4% and 6.2%, respectively so far in the year, reflecting the strong start witnessed by the sector.

M&A and licensing deals as well as drug pricing issues are expected to remain in focus in 2017. Investors will also be glued to new product approvals along with label expansion of existing drugs and regular pipeline updates for key drugs.

Factors Influencing the Quarter

With the earnings season drawing to a close and majority of the bigwigs having reported results we can conclude that the pharma/healthcare sector has witnessed a mixed performance.

Industry bellwether Johnson & Johnson (JNJ - Free Report) reported mixed results for the first quarter wherein earnings surpassed expectations, revenues missed estimates. Eli Lilly (LLY - Free Report) and Pfizer too reported mixed results.  On the other hand, biotech bigwig Gilead Sciences (GILD - Free Report) beat on earnings but missed on sales. Biogen, Inc. (BIIB - Free Report) reported better-than-expected results in first-quarter 2017. The company surpassed expectations both for earnings and sales.

Although a major chunk of the sector has already reported, it is still not too late to join the bandwagon. There are still a bunch of companies left to report results. We shall help you to zero in on a number of stocks that are poised to beat earnings estimates this quarter. An earnings beat should help these stocks gain investor confidence and show favorable price movements.

A Guideline to Make Prudent Choices

Given the enormity of the healthcare space, selecting stocks that have the potential to beat estimates could appear to be quite daunting. However, our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.  More often than not, a positive earnings surprise delivered by a company leads to stock price appreciation.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.  You can uncover the best stocks to buy or sell before they’re reported with our
Earnings ESP Filter.

4 Solid Picks

Here are four healthcare stocks that are poised to beat estimates in the first quarter according to our methodology.

Endo International plc is scheduled to report first-quarter 2017 results on May 9, before the opening bell. Endo posted a positive surprise in each of the trailing four quarters, with an average positive surprise of 12.7%. Last quarter, the company delivered a positive earnings surprise of 8.59%. Endo announced an accelerated restructuring of its generics product and R&D portfolio, as well as the manufacturing facility network. This initiative is expected to boost the company’s bottomline.  Endo currently carries a Zacks Rank #3. The combination of Zacks Rank #3 and an ESP of +1.79 makes us confident of an earnings beat in the upcoming release.

Immune Design is expected to report first-quarter results on May 9. The company has a decent track record so far having reported a wider-than-expected loss in one of the four trailing quarters and a narrower-than-expected loss in the two other occasions, bringing the positive average surprise to 4.31%. Being a development-stage biopharmaceutical company, Immune Design has not generated any product revenues yet and hence investors should keep an eye on the company’s progress with its pipeline candidates. Immune Design is developing multiple candidates using its two discovery platforms – ZVex and GLAAS – for the treatment of various types of cancers. Key pipeline candidates include CMB305 (solid tumor) and G100 (merkel cell carcinoma). The company currently carries a Zacks Rank #3 and has an earnings ESP of +11.3% which makes it likely to post an earnings beat in the upcoming release.

Ionis Pharmaceuticals, Inc. (IONS - Free Report) is scheduled to report first-quarter 2017 results on May 9. Last quarter, the company recorded a positive earnings surprise of 265%. Ionis’ track record has been mixed so far. Over the four trailing quarters, the company posted an average positive earnings surprise of 62.20%, having beaten estimates in two quarters and missing the same twice. The company is a RNA-targeted drug discovery and development company which focuses on developing drugs for severe and rare diseases. In a significant boost, Ionis and Biogen received FDA’s approval for Spinraza (nusinersen), an antisense drug, for the treatment of spinal muscular atrophy (SMA) in Dec 2016. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +250% which hints at an earnings beat in the upcoming release.

Editas Medicine, Inc. (EDIT - Free Report) is a genome editing company which is focused on treating patients with genetically defined diseases by correcting their disease causing genes. The company has collaborated with Juno Therapeutics, Inc., to develop novel engineered T cell therapies for cancer. The company is expected to report first-quarter results on May 15. Although the track record is dismal, the company’s favorable Zacks Rank #3 and an Earnings ESP of +32.26%, is likely to help it to surpass expectations.

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