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Pharma Q2 Earnings Growth Highest: Time to Buy ETFs?

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Total earnings of the 81.7% of the entire healthcare market capitalization that has reported so far are up 9% on revenue growth of 8%. The earnings growth rates seem to be the highest of all the sectors till now. Earnings and revenue beat ratios of 97.1% and 74.3%, respectively also appear strong.

Most industry bigwigs delivered encouraging results, either beating on earnings or revenues or both and also raised revenue or earnings outlook or both. Let’s delve into a few of them:

Earnings in Focus

Johnson and Johnson

The world's biggest health care products maker continued its long streak of earnings beat and also outpaced revenue estimates. Earnings per share came in at $2.58, 16 cents ahead of the Zacks Consensus Estimate and 22.9% higher than the year-ago quarter. Revenues fell 1.3% year over year to $20.56 billion but edged past the Zacks Consensus Estimate of $20.32 billion. Johnson & Johnson raised its sales forecast to $80.8-$81.6 billion from $80.4-$81.2 billion on robust demand for its cancer drugs. It reaffirmed its earnings per share guidance of $8.53-$8.63. However, the company warned competition from generics and biosimilars that could impact its third-quarter results (read: Healthcare ETFs in Focus on JNJ's Q2 Earnings Beat).


Earnings per share of 80 cents were 3 cents above the Zacks Consensus Estimate while revenues of $13.26 billion lagged the consensus mark of $13.32 billion. On a year-over-year basis, earnings per share and revenues rose 4% and 2%, respectively. For 2019, the U.S. drug giant slashed sales guidance to $50.5-$52.5 billion from $52-$54 billion and earnings per share to $2.76-$2.86 from $2.83-$2.93.


Earnings per share of $1.30 surpassed the Zacks Consensus Estimate of $1.16 and also improved 23% from the year-ago quarter. Moreover, revenues grew 12% year over year to $11.76 billion, edging past the consensus mark of $10.91 billion. Merck increased its revenue projection from $43.9-$45.1 billion to $45.2-$46.2 billion for this year and earnings per share view from $4.67-$4.79 to $4.84-$4.94.


Bristol-Myers’s earnings per share of $1.18 beat the Zacks Consensus Estimate by 12 cents and also rose from the year-ago figure of $1.01. Revenues grew 10% year over year to $6.27 billion and also trumped the Zacks Consensus Estimate of $6.04 billion. The company lifted its earnings per share guidance to $4.20-$4.30 from $4.10-$4.20 (read: Biotech ETFs in Focus on Impressive Q2 Earnings Results).

Eli Lilly

Eli Lilly also delivered better-than-expected earnings but lagged on revenues. Earnings of $1.50 per share were 4 cents ahead of the Zacks Consensus Estimate and came in 1% higher than the year-earlier quarter. Revenues grew 1% to $5.64 billion but slightly fell short of the estimated $5.65 billion. While Eli Lilly maintained its 2019 revenue guidance of $22-$22.5 billion, it raised its earnings prediction to $5.67-$5.77 from $5.60-$5.70.

ETF Angle

Despite such robust results, pharma ETFs have been trending downward in a month. Below, we have highlighted those in detail.

iShares U.S. Pharmaceuticals ETF IHE

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 10 holdings in the basket, accounting for 54.8% of the total assets, suggesting heavy concentration. The product has $331.1 million in AUM and charges 42 bps in fees and expense. Volume is light as it exchanges about 11,000 shares a day. The fund has lost 6.5% in a month and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: AbbVie to Buy Allergan: Prescribed ETFs).

First Trust Nasdaq Pharmaceuticals ETF FTXH

This fund tracks the Nasdaq US Smart Pharmaceuticals Index, holding 30 securities in its basket. The in-focus firms account for a combined 34.6% of the assets. FTXH has a lower level of $7 million in AUM and 3,000 shares in average daily volume. It charges 60 bps in annual fees and is down 6.8% in the same time frame. The product has a Zacks ETF Rank #3.

SPDR S&P Pharmaceuticals ETF XPH

This fund provides exposure to pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $196.1 million, it trades in good volume of around 56,000 shares a day and charges 35 bps in fees a year. In total, the product holds 41 securities with the in-focus five firms making up for at least 4% share each. The product is down 7.9% in the same period and has a Zacks ETF Rank #3 with a High risk outlook.

VanEck Vectors Pharmaceutical ETF PPH

This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 25 stocks in its basket. The in-focus five firms account for a combined 23.6% share. The product has amassed $163.2 million in its asset base and trades in moderate volume of about 46,000 shares a day. Expense ratio comes in at 0.36%. The fund has shed 4.8% of value in a month and has a Zacks ETF Rank #3 with a Medium risk outlook.

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 $378.5 million and sees a lower volume of around 36,000 shares a day. The fund charges 57 bps in fees and expenses. Holding 30 stocks, the fund invests nearly 5% share each in the five firms. The ETF has declined 6.3 % in a month and has Zacks ETF Rank #3 with a High risk outlook (see: all the Healthcare ETFs here).

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