The Q3 earnings season is approaching its end with 81.2% of the S&P 500 companies having already released results. The majority of players within the medical space have already reported their performance. Per the latest Earnings Trends, total earnings for the medical sector are up 6.5% from the same period last year on 4.6% higher revenues.
This year, biotech stocks bounced back strongly after the drug pricing issue affected last year’s performance. The pharma and biotech industry has demonstrated strength despite challenges like rising competition, pipeline setbacks, slowdown in growth of mature products and generic competition for certain key drugs. Although drug pricing risk persists, investors look comfortable with the scenario and are focused on the fundamentals to drive the stocks.
Many factors were responsible for the recovery of the sector this year including ramp up of new product sales, R&D success and innovation, strong clinical study results, regular FDA approvals and a consistently strong performance of legacy products.
On a broader spectrum, the proposed tax reforms, if approved, will leave more cash in hand for these companies. The cash can be invested for mergers/acquisitions, which have been relatively few this year compared with the last.
Among the big biotech/pharma companies that have already reported earnings results, Biogene (BIIB), Gilead (GILD), Amgen (AMGN) and Vertex (VRTX) beat both earnings and revenue estimates. On the other hand, Celgene (CELG) reported mixed results in the quarter with earnings beating expectations but sales missing the same. While Gilead raised its earnings guidance, Celgene increased only the lower end of its earnings outlook.
While most key players have reported quarterly numbers, some small biotech companies are yet to come up with solid figures.
How to Pick Prospective Q3 Winners
Given the enormity of the healthcare space, selecting stocks with potential to beat estimates appears to be a daunting task. But our simple proprietary methodology helps choosing stocks with the right combination of two key ingredients — a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP, which indicates higher chances of an earnings beat. More often than not, a positive earnings surprise delivered by a company leads to stock price appreciation.
An Earnings ESP determines the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that chances of a positive earnings surprise for stocks with an ideal combination of elements are pegged 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 best biotech stocks that hold promise to beat estimates in the third quarter:
Cidara Therapeutics Inc (CDTX - Free Report) is a San Diego, CA-based company with an Earnings ESP of +16.06% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for the third quarter is pegged at a loss of 97 cents per share. The company has a mixed earnings surprise record with earnings having surpassed expectations in only one of the last four quarters with an average negative surprise of 4.96%.
Cidara is scheduled to report results on Nov 8.
Inovio Pharmaceuticals, Inc. (INO - Free Report) has an Earnings ESP of +41.79% and carries a Zacks Rank #3. The Zacks Consensus Estimate for the third quarter is pegged at a loss of 22 cents per share. The Pennsylvania-based Inovio has a mixed earnings track record. The average negative earnings surprise over the trailing four quarters is 0.41%.
Inovio is scheduled to announce results on Nov 8.
Puma Biotechnology Inc (PBYI - Free Report) has an impressive track record with the company beating expectations in three of the last four quarters with an average positive surprise of 39.46%. It looks poised to beat expectations in the third quarter as well. This Los Angeles, CA-based company carries a Zacks Rank of 3 and has an Earnings ESP of +18.47%. The Zacks Consensus Estimate is pegged at a loss of $2.75 cents per share.
Puma is scheduled to report results on Nov 9.
Strongbridge Biopharma PLC (SBBP - Free Report) is another solid bet this season. This Zacks #2 Ranked stock has an Earnings ESP of +8.80%. The Pennsylvania-based company delivered an average positive earnings surprise of 15.42% over the trailing four quarters.
Strongbridge is scheduled to release results on Nov 14 with the Zacks Consensus Estimate for the third quarter being pegged at a loss of 42 cents per share.
Waltham, MA-based Repligen Corporation (RGEN - Free Report) also enters the list of likely outperformers in the third quarter by virtue of its Earnings ESP of +31.58% and is #3 Ranked as well. The Zacks Consensus Estimate is pegged at 11 cents per share.
Repligen is expected to release results on Nov 9.
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