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Is a Beat in Store for Glaxo (GSK) This Earnings Season?

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We expect GlaxoSmithKline plc (GSK - Free Report) to beat expectations when it reports first-quarter 2019 results on May 1, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 12.86%.

Shares of Glaxo have increased 5.3% so far this year against the industry‘s decrease of 2.6%.

Glaxo’s earnings performance has been mixed so far. The company’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice with the average positive beat being 3.74%.

Let’s see how things are shaping up for this quarter.

Factors to Consider

Sales in Glaxo’s Pharmaceuticals segment are expected to be driven by solid sales of new HIV products, Tivicay and Triumeq. Strong uptake of the company’s latest product from the HIV portfolio, Juluca, is expected to continue in the first quarter of 2019. However, sales of other HIV drugs, Epzicom/Kivexa are likely to decline due to more severe generic competition, particularly inthe European market.

In late March, the company announced that its Respiratory category will only include sales of Ellipta products and Nucala. Sales of older respiratory products, namely Seretide/Advair will be included in the Established Pharmaceuticals category from the first quarter.

Ellipta products have shown strong growth trend, which is likely to continue in the soon-to-be reported quarter. A label expansion of TrelegyEllipta approved in November last year is expected to have a positive impact on its sales. International launches and U.S. market expansion for Nucala is expected to drive sales in the first quarter. However, growth in Nucala sales may slow-down due to a rise in competition which has affected sales in the previous quarter. Meanwhile, older respiratory products are facing generic competition, which will likely hurt sales in the quarter.

Growth trend for Glaxo’s immuno-inflammation drugs like Benlysta isexpected to continue in the first quarter.

The Vaccines segment is likely to consistently benefit from sustained uptake of its successful shingles vaccine, Shingrix. Meningitis vaccines like Bexsero and Menveo, acquired from Novartis AG (NVS - Free Report) ,enjoyed strong demand in 2018. However, Menveo faced supply constraints in European and International markets in the last reported quarter. We expect demand for these vaccines to remain strong while supply constraints may partially offset growth.

In Consumer Healthcare segment, sales are likely to be driven by Oral health, Wellness and Nutrition products. However, rising competition in Europe and declining sales of the Skin health category will have a negative impact.

The launch of a generic version of Advair and costs related to the acquisition of TESARO is likely to hurt margins in the first quarter of 2019.

Key Developments in Q1

In January, the company completed its acquisition of TESARO, adding the latter’s PARP inhibitor, Zejula, to its oncology portfolio.

We expect Glaxo to provide updates on synergies related to Zejula’s integration into the company’s portfolio and pending divestiture of its Horlicks and other nutrition products in certain geographies. Investors may ask questions on the company’s path forward for its new joint venture with Pfizer (PFE), which will create the world’s largest consumer healthcare business.

Earnings Whispers

Our proven model indicates that Glaxo is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate (68 cents) and the Zacks Consensus Estimate (66 cents), stands at +3.55%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Glaxo has a Zacks Rank #3. The combination of a positive Earnings ESP and a favorable Zacks Rank makes us reasonably confident of an earnings beat.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

GlaxoSmithKline plc Price and Consensus


GlaxoSmithKline plc Price and Consensus | GlaxoSmithKline plc Quote

Other Stocks to Consider

Here are some biotech stocks that you may also want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

Incyte Corporation (INCY - Free Report) has an Earnings ESP of +14.47% and a Zacks Rank #1. The company is scheduled to release first-quarter results on Apr 30.

Gilead Sciences, Inc. (GILD - Free Report) has an Earnings ESP of +0.98% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 2.

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