The Q3 earnings season is drawing to a close, with 84.6% (as of Nov 4) of the S&P 500 members having already reported results. In fact, at this juncture, Retail is the only sector to have a substantial number of earnings results yet to be released.
But how has the Q3 earnings cycle panned out so far? The picture that has emerged as of now indicates a quarter of an overall improvement in results, predominantly on the bottom-line front. In fact, the quarter is being referred to as an inflection point, which is characterized by the growth trajectory moving from the negative to the positive territory. Notably, Q3 is on track to be the first quarter to see positive earnings growth after five quarters of back-to-back declines.
Out of the 423 S&P 500 companies that have reported results as of Nov 4, 72.8% breezed past earnings expectations while 55.1% were able to exceed revenue estimates.
Narrowing our focus to the Medical sector, it is one of the several sectors to witness earnings and revenue growth this quarter. Our Q3 scorecard shows that 86.8% of the companies in the Medical sector have reported results so far, with earnings increasing 6.4% on 7.4% higher revenues. The blended beat, which represents the percentage of companies that have beaten both earnings and revenue estimates, stands at 41.3%.
The earnings picture for both the pharma and the biotech sectors is a mixed bag of beats and misses. Pharma giants including the likes of Johnson & Johnson (JNJ - Free Report) and Bristol-Myers Squibb Company (BMY - Free Report) surpassed both earnings and revenue expectations, and raised their outlook for the year. Meanwhile, Allergan plc and Pfizer Inc. lagged on both the fronts and announced a cut in the earnings guidance for the year.
Again, in the biotech sector, Celgene Corporation and Amgen Inc. topped earnings and revenue estimates and raised their outlook for the year, while sector behemoth Gilead Sciences Inc. (GILD - Free Report) missed on earnings despite beating revenue expectations marginally, and kept its outlook for the year.
Nevertheless, several mid- and small-sized pharma and biotech companies are yet to report Q3 results. Let’s take a sneak peek at four such companies in the Medical sector that will report results on Nov 8.
What’s in Store for these Drug Stocks?
Dublin, Ireland-based Jazz Pharmaceuticals plc (JAZZ - Free Report) is a biopharmaceutical company with a portfolio of offerings targeting sleep and hematology/oncology disorders. Investors are expected to keep an eye on the performance of marketed products including Xyrem, Defitelio and Erwinaze among others. Focus will also be on the commercialization plans for Defitelio in the U.S., patent litigations related to Xyrem and the company’s business development plans.
JAZZ PHARMACEUT Price and EPS Surprise
Jazz’s track record has been encouraging so far, with the company beating earnings estimates thrice in the trailing four quarters, bringing the average positive surprise to 19.51%. Jazz currently has a Zacks Rank #4 and an Earnings ESP of +0.64%. Note that we caution against Sell-rated stocks (#4 or 5) going into an earnings announcement. (Read more: Jazz Pharma Q3 Earnings: A Disappointment in Store?)
Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Valeant Pharmaceuticals International, Inc. (VRX - Free Report) is a specialty pharmaceutical and medical device company (contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices) that develops, manufactures and markets a broad range of pharmaceutical products in the areas of dermatology, gastrointestinal disorders, eye health, neurology and branded generics. Valeant has been in the headlines since late 2015 for the drug pricing controversy. It has drawn flak for following a strategy of acquiring companies and selling their drugs at massively hiked prices.
VALEANT PHARMA Price and EPS Surprise
The company’s performance has been disappointing so far. It has missed earnings expectations in three of the trailing four quarters. Overall, the company has delivered a negative earnings surprise of 6.67%. It currently has a Zacks Rank #5 and an ESP of -5.62%.
Cayman Islands-based Theravance Biopharma, Inc. (TBPH - Free Report) is a biopharmaceutical company focused on the development of treatments of patients suffering from serious illnesses. Focus will be on the performance of the company’s sole marketed Vibativ, an antibiotic approved in the U.S., Europe and certain other countries for certain difficult-to-treat infections. Investors are also expected to keenly await updates on the company’s pipeline. The company has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
THERAVANCE BIO Price and EPS Surprise
Theravance’s track record has been mixed so far, with the company surpassing expectations on two occasions and missing the same twice. Overall, the company has delivered a negative surprise of 0.28%. The stock has an ESP of -2.27%, which when combined with a Zacks Rank #3, makes a surprise prediction difficult this quarter.
Ophthotech Corporation (OPHT - Free Report) is a development-stage biopharmaceutical company focused on the development of therapeutics for back-of-the-eye diseases, particularly wet age-related macular degeneration (AMD). With no approved product in its portfolio yet, investors are expected to keep an eye on pipeline development at the company. Fovista is the company’s most advanced candidate, which is being developed for the treatment of wet AMD.
OPHTHOTECH CORP Price and EPS Surprise
Ophthotech has a pretty good track record, with the company having beaten estimates in three of the last four reported quarters. Overall, it has delivered an average positive surprise of 9.31%. This New York-based company has a Zacks Rank #4 and an ESP of 0.00%.
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