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Pharma ETFs Soar on Robust Q2 Earnings

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After technology, the healthcare sector is enjoying a smooth ride this year, especially buoyed by the optimism surrounding coronavirus vaccines. In fact, this is the only sector that is reporting earnings growth in the second-quarter reporting cycle. This is especially true as total earnings of 66.4% of the healthcare market capitalization that has reported so far are up 4.4% on revenue growth of 4%. Earnings and revenue beat ratios of 86% and 79.1%, respectively, also appear strong (read: Late-Stage Coronavirus Vaccine Trials Begin: Biotech ETFs to Gain).

Most industry bigwigs have delivered encouraging results, either beating on earnings or revenues or both, and have also raised revenue or earnings guidance or both. Let’s delve deeper into a few of them:

Earnings in Focus

Johnson and Johnson (JNJ - Free Report)

The world's biggest healthcare products maker continued its long streak of earnings beat. Earnings per share came in at $1.67, which beat the Zacks Consensus Estimate by 17 cents but declined 35.3% from the year-ago quarter. Revenues dropped 10.8% year over year to $18.34 billion but edged past the consensus estimate of $17.57 billion. Johnson & Johnson lifted its 2020 outlook. It raised its revenue guidance to $79.9-$81.4 billion from $77.5-$80.5 billion. The new guidance represents a year-over-year decline of 0.8-2.6%. Earnings per share are expected in the range of $7.75-$7.95 (year-over-year decline of 8.4-10.7%), up from the previous forecast of $7.50-$7.90 (year-over-year growth of 9-13.6%).

Pfizer (PFE - Free Report)

Pfizer topped the consensus mark on earnings but lagged on revenues. Earnings per share of 78 cents were well above the Zacks Consensus Estimate of 64 cents. Revenues of $11.80 billion fell shy of the consensus mark of $11.88 billion. On a year-over-year basis, earnings and revenues declined 2% and 11%, respectively. For 2020, the U.S. drug giant raised its financial outlook for 2020. Revenues are expected in the range of $48.6-$50.6 billion, up from $48.5-$50.5 billion while earnings per share are expected in the range of $2.85-$2.92, up from $2.82-$2.92 (read: Biotech ETFs to Shine on Pfizer's Coronavirus Vaccine Progress).

Merck (MRK - Free Report)

Merck reported better-than-expected earnings but lagged on revenues. Earnings per share of $1.37 surpassed the Zacks Consensus Estimate of $1.14 and improved 6% from the year-ago quarter. Revenues dropped 8% year over year to $10.87 billion but fell short of the consensus mark of $10.92 billion. Merck upped its sales and earnings guidance for 2020. It expects revenues in the range of $47.2-$48.7 billion, higher than the earlier guided range of $46.1-$48.1 billion while adjusted earnings are expected in the range of $5.63-$5.78 compared with $5.17-$5.37 guided previously.

Bristol-Myers (BMY - Free Report)

Bristol-Myers’s earnings per share of $1.63 beat the Zacks Consensus Estimate by 17 cents and rose from the year-ago figure of $1.18. Revenues grew 61.6% year over year to $10.13 billion and trumped the Zacks Consensus Estimate of $10.08 billion. The company modified the guidance for 2020. It expects revenues in the range of $40.5-$42 billion compared with the previous projection of $40-$42 billion while adjusted earnings are expected in the range of $6.10-$6.25 compared with $6.00-$6.20 guided previously.

Eli Lilly (LLY - Free Report)

Eli Lilly also posted better-than-expected earnings but lagged on revenues. Earnings of $1.89 per share topped the Zacks Consensus Estimate by 31 cents and came in 26% higher than the year-ago quarter. Revenues fell 2% to $5.50 billion and fell shy of the estimated $5.62 billion. While Eli Lilly maintained its 2020 revenue projection of $23.7-$24.2 billion, it raised the earnings per share guidance to $7.20-$7.40 from $6.70-$6.90.

ETF Angle

Strong results have led to solid trading in pharma ETFs over the past month. Below we have highlighted those in detail (see: all the Healthcare ETFs here).

iShares U.S. Pharmaceuticals ETF (IHE - Free Report)

This ETF provides exposure to 43 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus firms are the top 10 holdings in the basket, accounting for 53.1% of the total assets, suggesting heavy concentration. The product has $350.7 million in AUM and charges 42 bps in fees and expense. Volume is light as it exchanges about 10,000 shares a day. The fund has added 5.5% in a month. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report)

This fund offers companies that are principally engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types. It follows the Dynamic Pharmaceuticals Intellidex Index and holds 32 stocks in its basket with the in-focus five firms collectively making up for 5% share each. The product has AUM of about $346.3 million and sees a lower volume of around 33,000 shares a day. The fund charges 56 bps in fees and expenses. The ETF has gained 2.3% in a month. It has a Zacks ETF Rank #2 with a High risk outlook.

SPDR S&P Pharmaceuticals ETF (XPH - Free Report)

This fund provides exposure to pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $247 million, it trades in good volume of around 97,000 shares a day and charges 35 bps in fees a year. In total, the product holds 40 securities with the in-focus five firms making up for at least 4% share each. The product has gained 2.6% in the same period and has a Zacks ETF Rank #2 with a High risk outlook.

VanEck Vectors Pharmaceutical ETF (PPH - Free Report)

This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 25 stocks in its basket. The in-focus five firms account for a nearly 5% share each. The product has amassed $227.8 million in its asset base and trades in moderate volume of about 29,000 shares a day. Expense ratio is 0.36%. The fund has gained 4.8% in a month and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: COVID-19 Vaccine Push Brings Hope: Stock & ETF Beneficiaries).

First Trust Nasdaq Pharmaceuticals ETF (FTXH - Free Report)

This fund tracks the Nasdaq US Smart Pharmaceuticals Index, holding 30 securities in its basket. The in-focus firms account for a combined 30.8% of the assets. FTXH has a lower level of $14.6 million in AUM and 7,000 shares in average daily volume. It charges 60 bps in annual fees and has gained 6.1% in the same time frame. The product has a Zacks ETF Rank #3.

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