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5 Major Drug Stocks Likely to Beat Q1 Earnings Estimates
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Pharma and biotech stocks had a difficult 2016 fraught with headwinds mainly related to drug pricing issues. Though the drug pricing issues still persist, the industry has nonetheless picked up backed by strong results, FDA approvals, success of new products and significant contributions from established drugs.
Also, healthcare merger and acquisition activity continues to gather steam. In-licensing activities and collaborations for the development of pipeline candidates have also increased significantly. Merger and acquisitions, especially small bolt-on-acquisitions as well as aggressive in-licensing activities and collaborations are expected to increase going forward. This is expected to act as a huge catalyst for biotech stocks. There has also been some talk about speeding up the FDA approval process, which should bode well for the long term growth of the sector.
The Zacks-classified Drugs industry has gained 3.3% this year so far, after declining 16.3% last year. A similar trend was witnessed in the share price movement of companies like Lilly, Celgene, Vertex Allergan, Amgen, all of which are in the green this year after a decline last year. Meanwhile, the SPDR S&P Pharmaceuticals ETF (XPH) index has risen 8.0% this year so far after declining 23.7% last year.
However, the sector does have its share of challenges like high-profile pipeline setbacks, generic/biosimilar competition for key drugs and slowdown in sales of some mature products. Nonetheless, it is still a good sector to invest in.
How to Pick Likely Q1 Winners
Given the enormity of the healthcare space, selecting stocks that have the potential to beat estimates could appear to be quite daunting. But our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP. More often than not, a positive earnings surprise delivered by a company leads to stock price appreciation.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are five healthcare stocks that are poised to beat estimates in the first quarter according to our methodology.
Our first pick is the bellwether of healthcare companies, Johnson & Johnson (JNJ - Free Report) , which has a solid presence in the pharmaceutical, medical devices and consumer care markets across the world. This New Brunswick, NJ-based company has a Zacks Rank #3 (Hold) and an Earnings ESP of +0.57%. The Zacks Consensus Estimate for the first quarter is $1.77 per share. The company has been seen to consistently beat earnings expectations. In fact, Johnson & Johnson’s earnings surpassed expectations in each of the last four quarters, with an average positive surprise of 2.43%.
J&J is expected to report results on Apr 18
Our next choice is biotech major, Amgen Inc. (AMGN - Free Report) . With a Zacks Rank #3, the stock carries an Earnings ESP of +0.67%. The Zacks Consensus Estimate for the first quarter is pegged at $3.00 per share. This Thousand Oaks, CA-based company has a pretty impressive track record with the company beating earnings estimates consistently. The average earnings surprise over the four trailing quarters is 7.38%.
Amgen is expected to announce results on Apr 26.
Large-cap pharma stock, Bristol-Myers Squibb Company (BMY - Free Report) too has an impressive track record with the company consistently beating earnings expectations. The company’s earnings surpassed expectations in three of the last four quarters, with an average positive surprise of 7.26%. This New York-based company carries a Zacks Rank #3 and has an Earnings ESP of +1.35%. It looks poised to beat expectations in the first quarter as well. The Zacks Consensus Estimate for the same is pegged at 74 cents per share.
Bristol-Myers is scheduled to report results on Apr 27.
Another well-known name in the pharmaceuticals market, Eli Lilly & Company (LLY - Free Report) makes it to our list of likely outperformers in the first quarter by virtue of its Zacks Rank #2 and an Earnings ESP of +1.04%. The Zacks Consensus Estimate is pegged at 96 cents per share. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lilly is scheduled to report its results on Apr 25.
United Therapeutics (UTHR - Free Report) , a biotechnology company is another solid bet. This Zacks Rank #3 stock currently carries an Earnings ESP of +5.37%. This Silver Spring, MD-based company registered an average positive earnings surprise of 15.39% over the trailing four quarters.
United Therapeutics is expected to release results on Apr 27, with the current Zacks Consensus Estimate for the first quarter pegged at $3.54 per share.
Bottom Line
Challenges in the form of competitive and pricing pressure will continue to remain in the healthcare sector. However, a number of companies in the space are seeing improvements in their financial results. Picking some outperformers from the space, backed by a solid Zacks Rank and a positive Zacks Earnings ESP, could lead investors to gain from this earnings season.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
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5 Major Drug Stocks Likely to Beat Q1 Earnings Estimates
Pharma and biotech stocks had a difficult 2016 fraught with headwinds mainly related to drug pricing issues. Though the drug pricing issues still persist, the industry has nonetheless picked up backed by strong results, FDA approvals, success of new products and significant contributions from established drugs.
Also, healthcare merger and acquisition activity continues to gather steam. In-licensing activities and collaborations for the development of pipeline candidates have also increased significantly. Merger and acquisitions, especially small bolt-on-acquisitions as well as aggressive in-licensing activities and collaborations are expected to increase going forward. This is expected to act as a huge catalyst for biotech stocks. There has also been some talk about speeding up the FDA approval process, which should bode well for the long term growth of the sector.
The Zacks-classified Drugs industry has gained 3.3% this year so far, after declining 16.3% last year. A similar trend was witnessed in the share price movement of companies like Lilly, Celgene, Vertex Allergan, Amgen, all of which are in the green this year after a decline last year. Meanwhile, the SPDR S&P Pharmaceuticals ETF (XPH) index has risen 8.0% this year so far after declining 23.7% last year.
However, the sector does have its share of challenges like high-profile pipeline setbacks, generic/biosimilar competition for key drugs and slowdown in sales of some mature products. Nonetheless, it is still a good sector to invest in.
How to Pick Likely Q1 Winners
Given the enormity of the healthcare space, selecting stocks that have the potential to beat estimates could appear to be quite daunting. But our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP. More often than not, a positive earnings surprise delivered by a company leads to stock price appreciation.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are five healthcare stocks that are poised to beat estimates in the first quarter according to our methodology.
Our first pick is the bellwether of healthcare companies, Johnson & Johnson (JNJ - Free Report) , which has a solid presence in the pharmaceutical, medical devices and consumer care markets across the world. This New Brunswick, NJ-based company has a Zacks Rank #3 (Hold) and an Earnings ESP of +0.57%. The Zacks Consensus Estimate for the first quarter is $1.77 per share. The company has been seen to consistently beat earnings expectations. In fact, Johnson & Johnson’s earnings surpassed expectations in each of the last four quarters, with an average positive surprise of 2.43%.
J&J is expected to report results on Apr 18
Our next choice is biotech major, Amgen Inc. (AMGN - Free Report) . With a Zacks Rank #3, the stock carries an Earnings ESP of +0.67%. The Zacks Consensus Estimate for the first quarter is pegged at $3.00 per share. This Thousand Oaks, CA-based company has a pretty impressive track record with the company beating earnings estimates consistently. The average earnings surprise over the four trailing quarters is 7.38%.
Amgen is expected to announce results on Apr 26.
Large-cap pharma stock, Bristol-Myers Squibb Company (BMY - Free Report) too has an impressive track record with the company consistently beating earnings expectations. The company’s earnings surpassed expectations in three of the last four quarters, with an average positive surprise of 7.26%. This New York-based company carries a Zacks Rank #3 and has an Earnings ESP of +1.35%. It looks poised to beat expectations in the first quarter as well. The Zacks Consensus Estimate for the same is pegged at 74 cents per share.
Bristol-Myers is scheduled to report results on Apr 27.
Another well-known name in the pharmaceuticals market, Eli Lilly & Company (LLY - Free Report) makes it to our list of likely outperformers in the first quarter by virtue of its Zacks Rank #2 and an Earnings ESP of +1.04%. The Zacks Consensus Estimate is pegged at 96 cents per share. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lilly is scheduled to report its results on Apr 25.
United Therapeutics (UTHR - Free Report) , a biotechnology company is another solid bet. This Zacks Rank #3 stock currently carries an Earnings ESP of +5.37%. This Silver Spring, MD-based company registered an average positive earnings surprise of 15.39% over the trailing four quarters.
United Therapeutics is expected to release results on Apr 27, with the current Zacks Consensus Estimate for the first quarter pegged at $3.54 per share.
Bottom Line
Challenges in the form of competitive and pricing pressure will continue to remain in the healthcare sector. However, a number of companies in the space are seeing improvements in their financial results. Picking some outperformers from the space, backed by a solid Zacks Rank and a positive Zacks Earnings ESP, could lead investors to gain from this earnings season.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>