The first-quarter earnings season has just kicked off. Per the latest Earnings Preview, the bottom line of S&P 500 companies is expected to increase at a highly impressive rate of 16.6% on a year-over-year basis. This prospective upside marks the maximum quarterly earnings growth pace in seven years. The report further predicts that 11 of the 16 Zacks sectors are projected to exhibit double-digit earnings growth in the to-be-reported quarter. Total revenues for the same set of companies are projected to grow 7.5%.
However, focusing our attention on the Large Cap Pharma and Medical-Drugs sector, we note that both these sectors have decreased 6.2% and 4.2%, respectively, since February this year due to broader market pressure. Further, the S&P 500 index has registered a decline of 6.2% since the second month of 2018.
We remind investors that the U.S. stock market is facing a severe volatility since the last couple of months despite a strong start this year. This downside can mainly be attributable to a potentially damaging trade war between the world’s two largest economies, United States and China, since this February.
After President Donald Trump announced plans to impose tariffs on up to $60 billion of annual Chinese imports, China retaliated by notifying its intention to levy tariffs on 128 U.S. products. Such aggressive exchange has triggered tensions of a possible trade dispute between the two countries. Moreover, sluggish large-cap tech stocks are cited as another reason for this plummet in the market.
Despite the recent market unrest, an optimistic sentiment revolves around the remaining year. Notably, the biotech sector is likely to improve as the year advances. We expect new product sales to thrive in tandem with rising demand. This apart, a successful innovation and a host of product launches, strong clinical study outcomes, more frequent FDA nods, solid performance of key products, growing demand for drugs, especially to deal with rare-to-treat diseases, an ageing population and an escalated healthcare expenditure are some of the factors to keep the sector stable. You can see the complete list of today’s Zacks #1 Rank stocks here.
It is important to note that the outlook for the upcoming first-quarter results looks bright. Per the Earnings Preview, the broader Medical sector (inclusive of drug, biotech as well as Medical Device companies) is expected to record 6.3% year-over-year growth in revenues and a 7.8% rise in earnings.
How to Pick Potential Q1 Winners
Given the enormity of the healthcare space, the task of selecting stocks with possibilities to beat estimates could appear quite daunting. But the Zacks proprietary methodology makes this job fairly simple. One way to carve out the top choices this reporting cycle is by looking at the stocks with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP. It is observed that a positive earnings surprise delivered by a company mostly leads to its stock price appreciation.
Per the well-researched quantitative model, an Earnings ESP is used for identifying stocks with higher or 70% chances of pulling off a positive surprise in the impending earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Per our proven methodology, we culled three stocks from large-cap pharma and two from the medical-drug sector, poised to surpass estimates in the to-be-reported quarter.
The three large cap stocks are as follows:
Our first pick is AbbVie Inc. (ABBV - Free Report) . This North Chicago, IL-based company has an Earnings ESP of +0.24% and a Zacks Rank #3. The stock has seen the Zacks Consensus Estimate for first-quarter 2018 earnings being pegged at $1.78 per share. Besides this, the company boasts an encouraging earnings track record, exceeding expectations in all the last four quarters with an average beat of 1.81%. AbbVie is scheduled to report earnings numbers on Apr 26.
Our next choice is Eli Lilly & Company (LLY - Free Report) . The stock has an Earnings ESP of +0.73% and a Zacks Rank #2. The consensus mark for first-quarter earnings stands at $1.13 per share. Headquartered in Indianapolis, IN, Lilly has an excellent positive earnings surprise history. The company’s average beat over the trailing four quarters is 4.08%. Lilly is slated to announce results on Apr 24.
Pfizer Inc. (PFE - Free Report) too has a pleasing earnings profile with the company having consistently outpaced expectations in all the last four quarters with an average beat of 4.97%. It looks perfectly poised to repeat this winning streak this time around as well. This New York-based player is Zacks #2 Ranked and has an Earnings ESP of +2.62%. The consensus mark for first-quarter bottom line is pegged at 73 cents per share. Pfizer is scheduled to release financial figures on May 1.
Given below are the two medical-drug stocks:
Our first pick from the medical-drug sector is Catalent, Inc. (CTLT - Free Report) . This New Jersey-based company has an Earnings ESP of +1.70% and a Zacks Rank of 3. The Zacks Consensus Estimate for first-quarter earnings is pegged at 39 cents per share. The company flaunts a positive earnings surprise record, outshining expectations in all the last four quarters with an average beat of 16.44%. Catalent is expected to report earnings on May 3.
Our next choice is Aratana Therapeutics, Inc. (PETX - Free Report) . The stock has an Earnings ESP of +37.14% and is a #3 Ranked player. The consensus mark for first-quarter loss stands at 18 cents per share. Based in Kansas, Aratana has an outstanding earnings history with consecutive estimate beats in the trailing four quarters, the average being 11.74%. The company is slated to announce results on May 4.
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