The fourth-quarter earnings season for pharma stocks has started with Johnson & Johnson reporting fourth-quarter results before market open. Pharma stocks include large and small drug makers as well as biotechs focused on developing novel therapies. These stocks form part of the wider Medical sector, which comprises pharma/biotech as well as medical device companies.
The Earnings Trends report, published last week, shows that the companies from the Medical sector are set to deliver 3.5% earnings growth on the back of 5.7% growth in sales year over year. New drugs and label expansions of blockbuster drugs are expected to have driven the top line of most of the big shots backed by higher demand, combating generic plus biosimilar competition for older medicines.
Moreover, drug stocks benefited from a plethora of mergers and acquisitions (M&A), which pumped billions of dollars in the pharma/drug industry in 2019. The year saw 14 billion-dollar deals, the largest being Bristol-Myers Squibb’s acquisition of Celgene in January for $74 billion. A pending takeover in the spotlight is that of AbbVie’s by Allergan. Last month, Novartis reached an agreement to buy The Medicines Company for $9.7 billion. In October, Alexion Pharmaceuticals offered $930 million to acquire Achillion Pharmaceuticals.
The Zacks Drugs industry has rallied 5.1% in the past six months and currently carries a Zacks Sector Rank in the top 44% (113 out of 256 industries). Several companies from this industry appear to be attractive bets ahead of earnings.
Zeroing in on Winners
Here we have highlighted five big drug/biotech companies, which are expected to deliver positive earnings surprise in their upcoming quarterly earnings announcements.
Earnings ESP is our proprietary methodology for determining the stocks that have the best chance to deliver a positive earnings surprise in their next earnings announcement. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. The selection can be done with the help of the Zacks Stock Screener.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
5 Drug/Biotech Stocks That Match the Criteria
AbbVie Inc. (ABBV - Free Report) )
This North Chicago, IL-based maker of medicines to inflammatory and cancer diseases has an Earnings ESP of +2.79% and a Zacks Rank of 3. The Zacks Consensus Estimate for the fourth quarter is pegged at $2.27 per share. The company is scheduled to release results on Feb 7. You can see the complete list of today’s Zacks #1 Rank stocks here.
AbbVie beat estimates in three of the last four quarters while missing the same in one quarter, with the average positive surprise being 1.71%.
AstraZeneca PLC (AZN - Free Report) )
The UK-based drugmaker has an Earnings ESP of +3.31% and a Zacks Rank #3. The Zacks Consensus Estimate for the fourth quarter is pegged at 50 cents per ADS. The company is scheduled to release results on Feb 14.
AstraZeneca’s earnings performance has been encouraging with the company delivering a positive surprise in all the trailing four quarters with the average beat being 36.96%.
Merck & Co., Inc. (MRK - Free Report) )
This Kenilworth, NJ-based pharmaceutical company has an Earnings ESP of +1.05% and a Zacks Rank #3. The Zacks Consensus Estimate for the fourth quarter is pegged at $1.14 per share. The company is scheduled to release results on Feb 5.
In the trailing four quarters, Merck delivered a positive earnings surprise in all the quarters with the average being 12.51%.
Alexion Pharmaceuticals, Inc. (ALXN - Free Report) )
The New Haven, CT-based biotech developing therapies for rare disease has an Earnings ESP of +5.93% and is #2 Ranked. The Zacks Consensus Estimate for the fourth quarter is pegged at $2.57 per share. The company is scheduled to release results on Feb 3.
Alexion’s earnings performance has been positive. Its earnings beat expectations in the last four quarters with the average positive surprise being 12.5%.
Amgen Inc. (AMGN - Free Report) )
This Thousand Oaks, CA-based biotech with strong presence in several disease segments has an Earnings ESP of +3.31% and a Zacks Rank of 3. The Zacks Consensus Estimate for the fourth quarter is pegged at $3.49 per share. The company is scheduled to release results on Jan 30.
Amgen beat estimates in each of the trailing four quarters, with the average surprise being a positive 5.82%.
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