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Healthcare to Post Solid Q3 Earnings Growth: ETFs in Focus

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Although the healthcare sector has lately been hit by the news that Johnson and Johnson (JNJ - Free Report) and Eli Lilly (LLY - Free Report) have halted their trials for the novel disease vaccine over safety concerns, it is expected to witness the second-highest earnings growth this earnings season.

The ultra-popular ETFs, Health Care Select Sector SPDR Fund (XLV - Free Report) , Vanguard Health Care ETF (VHT - Free Report) , iShares U.S. Healthcare ETF (IYH - Free Report) and Fidelity MSCI Health Care Index ETF (FHLC - Free Report) , have gained around 1% in the past three months (read: JNJ Beats Q3 Earnings, Lifts Outlook: Healthcare ETFs in Focus).

The price movement of the fund depends on earnings releases of some big names like Pfizer (PFE - Free Report) , Merck (MRK - Free Report) , Amgen (AMGN - Free Report) , AbbVie (ABBV - Free Report) , Gilead Sciences (GILD - Free Report) and Bristol-Myers Squibb (BMY - Free Report) that dominate returns. These firms are lined up to report their earnings in the coming weeks. All these stocks collectively account for 22.6% share in XLV, 20.4% in IYH, 19.6% in VHT and 19.4% in FHLC.

Let’s dig deeper into the earnings picture of these companies, which will drive the performance of the above-mentioned funds in the coming days:

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Pfizer has a Zacks Rank #3 and an Earnings ESP of -0.12%. The stock witnessed negative earnings estimate revision of a couple of cents for the to-be-reported quarter over the past 30 days. It delivered earnings surprise of 12.53%, on average, in the past four quarters and has a Value Score of B. Pfizer is scheduled to report earnings on Oct 27, before the opening bell.

Merck is expected to report results on Oct 27 before market open. It has a Zacks Rank #3 and an Earnings ESP of +2.60%. The stock witnessed negative earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. Additionally, the stock delivered an average beat of 12.66% in the last four quarters. Merck has a VGM Score of A (see: all the Healthcare ETFs here).

Amgen carries a Zacks Rank #3 and has an Earnings ESP of +0.01%. It has witnessed positive earnings estimate revision of a penny over the past 30 days for the quarter to be reported. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The earnings surprise track over the past four quarters is strong, with the beat being 8.58%, on average. The stock has a VGM Score of A. Amgen will report earnings on Oct 28.

AbbVie has a Zacks Rank #3 and an Earnings ESP of -0.97%. The company delivered earnings surprise of 3.32%, on average, in the last four quarters. It saw negative earnings estimate revision of a penny over the past month for the to-be-reported quarter. The stock has a top Value Score of A. The company is scheduled to report on Oct 30 before the opening bell.    

Gilead is expected to release earnings on Oct 28 after market close. It has a Zacks Rank #3 and an Earnings ESP of 0.00%. The stock saw negative earnings estimate revision of 3 cents over the past month for the to-be-reported quarter. Gilead’s negative earnings surprise was 10.21%, on average, over the last four quarters. Gilead has a VGM Score of A.

Bristol-Myers will likely report earnings on Nov 5 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of +1.01%. The stock delivered an earnings surprise of 8.02%, on average, over the past four quarters, but saw negative earnings estimate revision of a penny for the to-be-reported quarter in a month. It has a VGM Score of A (read: Healthcare ETFs Pop on Bristol Myers-MyoKardia Deal).

Summing Up

The healthcare sector is expected to witness substantial earnings growth of 5.1% in the third quarter, representing the second strongest sector this earnings season. In particular, FHLC has a Zacks ETF Rank #3 while the remaining three have a Zacks ETF Rank #2.

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