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Q3 Earnings Fail to Impress Pharma ETFs

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The healthcare sector’s Q3 results seem robust given that it is the best sector from a revenue growth look and the third-strongest in terms of earnings growth. Total earnings of 58.6% for the healthcare market capitalization that has reported so far are up 8% on revenue growth of 12.1%. Earnings and revenue beat ratios of 90% and 85%, respectively, also appear robust.

However, many industry bigwigs reported mixed results with some beating on earnings or revenues or both, while a few missing the estimates on both fronts. Additionally, many of them tightened the outlook for the full year. Let’s delve deeper into a few of them:

Earnings in Focus

Johnson and Johnson

The world's biggest healthcare products maker continued its long streak of earnings beat and outpaced revenue estimates. Earnings per share came in at $2.20, beating the Zacks Consensus Estimate of $1.99 and improving 3.8% from the year-ago quarter. Revenues grew 2% year over year to $21.1 billion and edged past the Zacks Consensus Estimate of $20.53 billion. Johnson & Johnson lifted its full-year outlook buoyed by strong demand for its cancer and Crohn's disease treatments. It raised its sales forecast from $79.9-$81.4 billion to $82-$82.8 billion and earnings per share guidance to $7.95-$8.05 from $7.75-$7.95 (read: JNJ Beats Q3 Earnings, Lifts Outlook: Healthcare ETFs in Focus).

Pfizer

Pfizer topped the consensus mark on earnings but lagged on revenues. Earnings per share of 72 cents were well above the Zacks Consensus Estimate of 70 cents. Revenues of $12.13 billion fell shy of the consensus mark of $12.23 billion. On a year-over-year basis, earnings and revenues declined 3% and 4%, respectively. For 2020, the U.S. drug giant narrowed the range of financial outlook. Revenues are expected in the range of $48.8-$49.5 billion, down from $48.6-$50.6 billion while the earnings guidance has been tightened from a range of $2.85-$2.95 to $2.88-$2.93 per share.

Merck

Merck reported better-than-expected results. Earnings per share of $1.74 surpassed the Zacks Consensus Estimate of $1.44 and improved 16% from the year-ago quarter. Revenues inched up 1% year over year to $12.55 billion and were ahead the consensus mark of $12.25 billion. Merck also tightened its sales and earnings guidance for 2020. It expects revenues in the range of $47.6-$48.6 billion, lower than the previously guided range of $47.2-$48.7 billion while adjusted earnings are expected in the range of $5.91-$6.01 compared with $5.63-$5.78 guided previously.

Eli Lilly

Eli Lilly came up with disappointing results. Earnings of $1.54 per share lagged the Zacks Consensus Estimate of $1.76 but increased 4% from the year-ago quarter. Revenues increased 5% to $5.74 billion and fell shy of the estimated $5.88 billion. Eli Lilly maintained its 2020 revenue projection of $23.7-$24.2 billion and earnings per share guidance of $7.20-$7.40 (read: ETFs to Shine on Lilly's U.S. Deal for Coronavirus Antibody).

ETF Angle

The slew of Q3 results have led to mixed trading in pharma ETFs over the past month. Below we have highlighted those in detail.

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

This ETF provides exposure to 47 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus four firms are the top 10 holdings in the basket, accounting for a combined 46.9% of the total assets, suggesting heavy concentration. The product has $343.1 million in AUM and charges 42 bps in fees and expense. Volume is light as it exchanges about 4,000 shares a day. The fund has shed 1.2% in a month. It has a Zacks ETF Rank #3 (Hold) 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 31 stocks in its basket with the in-focus four firms collectively making up for 5% share each. The product has AUM of about $310.7 million and sees a lower volume of around 18,000 shares a day. The fund charges 56 bps in fees and expenses. The ETF has lost 2.2% in a month. It has a Zacks ETF Rank #3 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 $220.6 million, it trades in good volume of around 50,000 shares a day and charges 35 bps in fees a year. In total, the product holds 42 securities with the in-focus firms making up for at least 4% share each. The product has shed 0.3% in the same period and has a Zacks ETF Rank #3 with a High risk outlook (see: all the Healthcare ETFs here).

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 four firms account for a nearly 5% share each. The product has amassed $217.5 million in its asset base and trades in moderate volume of about 61,000 shares a day. Expense ratio is 0.36%. The fund has lost 0.1% in a month and has a Zacks ETF Rank #3 with a Medium risk outlook.

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 23.6% of the assets. FTXH has a lower level of $18.6 million in AUM and 9,000 shares in average daily volume. It charges 60 bps in annual fees and was down 1.2% in the same time frame. The product has a Zacks ETF Rank #3.

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