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Will These 4 Large-Cap Drug Stocks Be Big Winners This Earnings Season?

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2017 was a good year for pharma and biotech stocks with the sector witnessing some positive developments that led to a much-awaited recovery.

A key reason for the sector’s improved performance was the willingness of investors to look beyond the drug pricing controversy and focus more on fundamentals instead. Although the drug pricing controversy, which was a major overhang in 2016, will remain a headline risk, investors seem more comfortable with the issue. Moreover, a significantly higher number of FDA approvals in 2017 has restored investor confidence in the sector. The approval of the first gene cell therapy last year was a major breakthrough for the sector.

Hopes of more mergers and acquisitions (M&As) have also gone up with tax reform in place and big players on the lookout for companies with innovative pipelines/technology. There has already been quite a bit of M&A buzz this year about potential deals with Celgene rumored to be interested in buying Juno , Biogen (BIIB - Free Report) in Acorda and Sanofi (SNY - Free Report) in Bioverativ. Meanwhile, Novo Nordisk recently confirmed that it is looking to acquire Belgium-based biopharma company Ablynx though Ablynx rejected Novo Nordisk’s offer.

Looking forward, new product sales ramp up, R&D success and innovation, continued strong performance from key products, more M&A activity, growing demand for drugs especially for rare-to-treat diseases, an aging population and increased health care spending are some of the factors that should keep the momentum in 2018.

Headwinds include drug pricing scrutiny, pricing pressure, increasing competition, the growing presence of biosimilars, generic competition, a slowdown in the growth of legacy products, concerns regarding Amazon’s interest in entering the healthcare arena and major pipeline setbacks.

4 Biotech & Pharma Stocks to Keep an Eye on This Earnings Season

According to the Zacks Earnings Trends article, the medical sector, which has been among the better performing sectors over the last several quarters, is expected to record earnings growth of 3% on revenue growth of 4.7% in the fourth quarter.

Given this scenario and with medical sector earnings round the corner, it would make sense to look at some pharma and biotech stocks that are expected to report a positive earnings surprise in the quarter.

Investing in such stocks could prove beneficial for investors as an earnings beat usually leads to significant share price appreciation.

With the help of the Zacks Stock Screener, we have zeroed-in on four pharma and biotech stocks that sport a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) and have a positive Earnings ESP. 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 has produced a positive surprise 70% of the time. While you can see the complete list of today’s Zacks #1 Rank stocks here, you can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Alexion Pharmaceuticals, Inc. (ALXN - Free Report) : Alexion has a strong presence in the rare diseases market. Marketed drugs include Soliris (for the treatment of patients with paroxysmal nocturnal hemoglobinuria (“PNH”), atypical hemolytic uremic syndrome (aHUS), and anti-acetylcholine receptor (AchR) antibody-positive generalized myasthenia gravis (gMG)), Strensiq (enzyme replacement therapy for patients with hypophosphatasia (“HPP”)) and Kanuma (enzyme replacement therapy for patients with lysosomal acid lipase deficiency (LAL-D)).

Alexion is focusing on growing and maximizing its presence in the rare disease business. Core areas of focus include hematology, nephrology, neurology and metabolic disorders. Alexion has consistently surpassed earnings expectations in each of the last four quarters with an average surprise of 11.9%. The Zacks Rank #3 stock, which will report fourth quarter results on February 8, has an Earnings ESP of +5.93% for the quarter. While 2017 Soliris revenues are expected in the range of $3,090 million - $3,125 million, metabolic revenues are expected in the range of $385 - $400 million.

Celgene Corporation (CELG - Free Report) : Celgene is focused on the discovery, development and commercialization of treatments for cancer and inflammatory diseases through next-generation solutions in protein homeostasis, immuno-oncology, epigenetics, immunology and neuro-inflammation. Earlier this month, the company announced preliminary results for the fourth quarter with revenues expected to be about $3.5 billion and earnings to be approximately $2.00 per share. Celgene has surpassed earnings in each of the last four quarters with an average surprise of 2.5%. The Zacks Rank #3 stock, which will be reporting fourth quarter results on January 25, has an Earnings ESP of +0.94%.

AbbVie (ABBV - Free Report) : AbbVie, which is known for its blockbuster drug, Humira, is focused on the development of treatments across four primary therapeutic areas: immunology, oncology, virology and neuroscience. 2017 earnings are expected to be about $5.54 per share on revenue growth of approximately 10%. Humira is expected to remain a key growth driver with sales expected to cross $18 billion in 2017. AbbVie will be reporting its fourth quarter results on January 26. The company has a decent track record having surpassed earnings expectations in each of the last four quarters with an average surprise of 1.1%. The Zacks Rank #3 stock has an Earnings ESP of +1.3% for the fourth quarter. AbbVie’s shares are up 71.6% over the last one year, significantly surpassing the 23.9% rally of the industry it belongs to.

Merck (MRK - Free Report) : Merck will be reporting fourth quarter results on February 2. The company has a strong earnings track record and is expected to deliver a surprise of +1.06% in the fourth quarter. Growth drivers include Keytruda, Gardasil, a few hospital and specialty products and the Animal Health division which should help offset the impact of the genericization of Zetia and Vytorin. Merck is also a Zacks Rank #3 stock.

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