The third-quarter earnings season has kicked off with Alcoa reporting results earlier this week. With the Q3 earnings season expected to pick pace in the coming days, the market will be focused on seeing if the overall earnings picture will improve this season.
Q2 was the 5th quarter in a row of earnings declines for the S&P 500 index with earnings declining 2.8%. Current expectations for Q3 show an earnings decline of 2.9%. Half of the 16 Zacks sectors are expected to record negative earnings growth this quarter with Oils/Energy leading the group with expected negative earnings growth of 68.3%, followed by Transportation (-21.4%) and Autos (-18.5%).
However, the overall expectation is that the worst is behind us with a turnaround in earnings growth expected from Q4 (Read more: What Will the Q3 Earnings Season Bring?).
Sectors that Should Perform Well in Q3
Meanwhile, Business Services (+7.1%), Construction (+6.3%) and other sectors like Retail, Finance, Utilities and Medical are expected to record earnings growth in Q3. In fact, Medical is one of the few sectors that has consistently recorded earnings growth over the last 4 quarters.
With the Medical sector expected to record earnings growth of 2.7% on revenue growth of 7.4% in Q3, it makes sense to select stocks from this sector that performed well in Q2 and are expected to do well in Q3. Investing in such stocks could prove beneficial for investors as an earnings beat usually leads to significant share price appreciation.
5 Drug Stocks to Keep an Eye on This Earnings Season
With the help of the Zacks Stock Screener, we have zeroed-in on five drug stocks that sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have an Earnings ESP of at least 5%. Earnings ESP is a very valuable tool for investors looking for stocks that are most likely to beat earnings estimates. Moreover, adding a Zacks Rank of #1, 2 or 3 (Strong Buy, Buy or Hold) has produced a positive surprise 70% of the time.
ARIAD Pharmaceuticals Inc. : Cambridge, MA-based ARIAD is focused on the discovery, development and commercialization of precision therapies for patients with rare cancers. ARIAD’s sole marketed product is leukemia drug Iclusig and the company is currently seeking FDA approval for brigatinib for a specific type of lung cancer.
The Zacks Rank #1 company, which had posted an earnings surprise of +670.00% in the last quarter, has an Earnings ESP of +10.00% for Q3. Average surprise over the last 4 quarters is +153.54%. ARIAD is expected to report third quarter results on Nov 1.
ARIAD PHARMA Price and EPS Surprise
United Therapeutics Corporation : Silver Spring, MD-based United Therapeutics is focused on the development and commercialization of innovative products to address the unmet medical needs of patients with chronic and life-threatening diseases. The company holds a strong position in the pulmonary arterial hypertension (PAH) market with four approved products targeting this indication.
The company, which had posted an earnings surprise of +38.65% in the last quarter, has an Earnings ESP of +5.46% for Q3. Average surprise over the last 4 quarters is +43.93%. The Zacks Rank #1 stock is expected to report third quarter results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.
UTD THERAPEUTIC Price and EPS Surprise
Achillion Pharmaceuticals, Inc. (ACHN - Free Report) : New Haven, CT-based Achillion is focused on the development of potent and specific complement factor D inhibitors for rare and other diseases. The Zacks Rank #2 stock, which had posted an earnings surprise of +12.50% in the last quarter, has an Earnings ESP of +6.25% for Q3. Moreover, the company has consistently surpassed earnings expectations in each of the last four quarters with an average surprise of +364.79%. Achillion is expected to report third quarter results on Nov 3.
ACHILLION PHARM Price and EPS Surprise
Ascendis Pharma A/S (ASND - Free Report) : Denmark-based Ascendis is a clinical stage biopharmaceutical company which uses its TransCon technology to address significant unmet medical needs in rare diseases. The Zacks Rank #2 stock, which had posted an earnings surprise of +10.45% in the last quarter, has an Earnings ESP of +15.49% for Q3. The company is expected to report third quarter results on Nov 10.
ASCENDIS PHARMA Price and EPS Surprise
Exelixis, Inc. (EXEL - Free Report) : South San Francisco, CA-based Exelixis is focused on the discovery, development and commercialization of new medicines for people with cancer. Approved products include Cabometyx, Cometriq and Cotellic. The Zacks Rank #1 stock, which had posted an earnings surprise of +40.74% in the last quarter, has an Earnings ESP of +15.39% for Q3. Average surprise over the last 4 quarters is +9.10%. The company is expected to report third quarter results on Nov 8.
EXELIXIS INC Price and EPS Surprise
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