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Q2 Earnings Drive Pharma ETFs Higher

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Total earnings for 83.5% of the total healthcare market capitalization are up 13.7% on revenue growth of 7.8%. The growth rates seem unimpressive when compared with some of the other sectors. Earnings and revenue beat ratios of 91.9% and 83.8%, respectively, are also not great either.

Among the most notable players, Johnson & Johnson (JNJ - Free Report) was the first major drug company to report earnings on Jul 17, followed by Eli Lilly and Company (LLY - Free Report) and Bristol-Myers Squibb Company (BMY - Free Report) on Jul 24 and Jul 26, respectively. Other major U.S. drug companies — Merck (MRK - Free Report) and Pfizer (PFE - Free Report) — reported on Jul 27 and Jul 31, respectively. These industry bigwigs came up with solid results beating on both earnings and revenue estimates.

Earnings in Focus

Johnson and Johnson


The world's biggest maker of healthcare products continued its long streak of earnings beat. Earnings per share came in at $2.10, four cents ahead of the Zacks Consensus Estimate and 14.8% higher than the year-ago quarter. Revenues grew 10.6% year over year to $20.83 billion and edged past the Zacks Consensus Estimate of $20.21 billion. However, Johnson & Johnson reduced its revenue guidance to $80.5-$81.3 billion from $81-$81.8 billion for 2018, citing a strong dollar. Further, it also narrowed the earnings per guidance range to $8.07-$8.17 from $8.00-$8.20 (read: Healthcare ETFs in Focus Following JNJ Q2 Results).

Pfizer

Earnings per share of 81 cents came in 6 cents above the Zacks Consensus Estimate and revenues of $13.47 billion beat the estimated $13.26 billion. On an annual basis, earnings per share and revenues rose 21% and 4%, respectively. For 2018, the U.S. drug giant narrowed the revenue guidance range from $53.5-$55.5 billion to $53-$55 billion, while raised earnings per share guidance from $2.90-$3.00 to $2.95-$3.05.

Merck

Earnings per share came in at $1.06, surpassing the Zacks Consensus Estimate of $1.03 and improving 5% from the year-ago quarter. Revenues inched up 5% year over year to $10.46 billion and were above the estimated $10.31 billion. Merck also tightened its 2018 revenue guidance to $42-$42.8 billion from $41.8-$43.0 billion from $41.2-$42.7 billion while raised the earnings per share guidance to $4.22-$4.30 from $4.16-$4.28.

Bristol-Myers

Bristol-Myers reported earnings per share of $1.01, 14 cents above the Zacks Consensus Estimate and ahead of the year-ago earnings of 74 cents. Revenues grew 11% to $5.70 billion and edged past the Zacks Consensus Estimate of $5.5 billion. The company raised 2018 earnings per share guidance to $3.55-$3.65 from $3.35-$3.45 (see: all the Healthcare ETFs here).

Eli Lilly

Earnings of $1.50 outpaced the Zacks Consensus Estimate by 19 cents and came in 35% higher than the year-ago quarter. Revenues grew 9% to $6.35 billion and beat the estimated $6.1 billion. Unlike the other drug makers, Eli Lilly raised its 2018 revenue guidance to $24-$24.5 billion from $23.7-$24.2 billion as well as earnings guidance to $5.40-$5.40 from $5.10-$5.20.

ETF Angle

The string of strong results pushed pharma ETFs higher, with the four funds posting positive returns over the past one month. Below, we have highlighted them in detail. These funds have a Zacks ETF Rank #3 (Hold).

iShares U.S. Pharmaceuticals ETF (IHE - Free Report)

This ETF provides exposure to 43 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus firms are the top five holdings in the basket, accounting for a combined 40.7% of total assets, suggesting heavy concentration. The product has $415.6 million in AUM and charges 43 bps in fees and expense. Volume is light as it exchanges about 11,000 shares a day. The fund is up 3.9% in a month.

SPDR S&P Pharmaceuticals ETF (XPH - Free Report)

This fund provides exposure to pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $352.2 million, it trades in good volume of around 95,000 shares a day and charges 35 bps in fees a year. In total, the product holds 44 securities with the in-focus five firms taking over 4% share each. The product has gained 5.8% in the same period (read: Pharma & Biotech ETFs Soar on Trump's Drug Plan).

VanEck Vectors Pharmaceutical ETF (PPH - Free Report)

This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 25 stocks in its basket. The in-focus five firms account for more than 4% share each. The product has amassed $281.8 million in its asset base and trades in a moderate volume of about 75,000 shares a day. Expense ratio comes in at 0.35%. The fund has added 2.5% in a month.

Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report)

This is by far the most popular choice in the pharma space that follows the Dynamic Pharmaceuticals Intellidex Index. The product has AUM of about $568.4 million and sees lower volume of around 37,000 shares a day. The fund charges 56 bps in fees and expenses. Holding 30 stocks, the fund invests nearly 5% share each in LLY, PFE, MRK and JNJ while 2.7% in BMY. The ETF has added 2.1% in a month (read: Play the Best Sector of Summer With These ETFs & Stocks).

First Trust Nasdaq Pharmaceuticals ETF (FTXH - Free Report)

This fund tracks the Nasdaq US Smart Pharmaceuticals Index, holding 29 securities in its basket. Of these, Eli Lilly, Pfizer and Merck account for more than 8% share each while Johnson & Johnson and Bristol-Myers make up for 4% each. FTXH has a lower level of $3.5 million in AUM and 3,000 shares in average daily volume. It charges 60 bps in annual fees and has surged 5.4% in the same time frame.

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