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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 2020 results on Apr 29, before market open. In the last reported quarter, the company delivered a negative surprise of 5.88%.

Shares of Glaxo have underperformed the industry so far this year. The stock has declined10.2% compared with the industry’s decrease of 1.8%.

Glaxo’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, delivering beat of 12.54%, on average.

Factors to Consider

Strong demand for its shingles vaccine Shingrix and newer respiratory drugs is likely to have driven sales of Glaxo’s Pharmaceuticals segment. However, impact of Advair generics and rising competition in the HIV segment, especially for three-drug regimens, might have hurt sales.

The growth trend in sales of the Respiratory category is likely to have continued in the first quarter on the back of strong demand for Trelegy Ellipta and Nucala. However, older respiratory drugs — Advair and Relvar/Breo Ellipta — facing competitive and pricing pressure are likely to have unfavorably impacted Glaxo’s sales.

The Vaccines segment is likely to have benefited from the sustained uptake of Shingrix. Sales of meningitis vaccine, Bexsero, acquired from Novartis AG (NVS - Free Report) , demonstrated growth in the previous three quarters. The trend is likely to have continued in the first quarter. Menveo sales also surged in the prior quarter. We note that demand for these vaccines fluctuates every season and therefore, sales may vary.

Sales of Glaxo’s Benlysta showed impressive growth in the last two quarters of 2019. During the fourth quarter, the drug’s label was expanded to include children aged five years or older with lupus in Europe, which may have boosted sales in the first quarter. Oncology sales, solely from Zejula, are also likely to have witnessed growth.

Meanwhile, the competitive environment and the shift in portfolio toward two-drug regimens have likely hurt sales of three-drug regimens — Tivicay and Triumeq — and older HIV drugs. However, the strong growth trend witnessed in two-drug regimens, Juluca and Dovato, might have helped the company to partially offset some of the losses in sales of three-drug regimens.

Glaxo formed a joint venture with Pfizer (PFE - Free Report) in August 2019 to create the world’s largest consumer healthcare business. Sales growth in the Consumer Healthcare segment were encouraging in the fourth quarter. In the Consumer Healthcare segment, first-quarter sales are likely to have been driven by Glaxo’s Wellness, Oral health and Nutrition products as well as Pfizer’s legacy products. Please note that, J&J and Sanofi’s consumer segments have benefitted from COVID-19 due to patient stockpiling. We expect similar benefit to be reflected in Glaxo’s first quarter results.

We expect the company to provide an update on its anticipated impact of this global crisis on its future business on the call.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for Glaxo this time around.  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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate (81 cents per share) and the Zacks Consensus Estimate (79 cents per share) is +3.19%.

Zacks Rank: Glaxo currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another Stock to Consider

Here is a large drug/biotech stock you may also want to consider, as our model shows that it has the right combination of elements to post an earnings beat this season.

Alexion Pharmaceuticals, Inc. (ALXN - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 6.

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