Investors around the world are seeing a ray of hope as the first-quarter earnings season kicked off on an encouraging note. With the downturn in China and falling oil prices weighing on the market since the start of 2016, investors were jittery when the companies started reporting results. In particular, the healthcare sector came under the scanner after Democratic Presidential candidate Hillary Clinton’s tweet on price hike reignited the debate on the massive drug price increase by companies, leading to a huge sell-off in the latter half of 2015. Other factors such as foreign exchange rates, biosimilars and generic competition continue to hurt the performance of this sector as well.
Interestingly, so far, results were not as dismal as analysts had estimated, with many companies reporting positive surprises for both the top- and bottom-line numbers. However, we are still in the early phase of the season and caution remains the keyword, going ahead. As per our Earnings Trends report, 71 S&P 500 members have released their first-quarter results, while 429 companies are yet to report as of Apr 20.
On the whole, earnings are still expected to decline 9.7% on a year-over-year basis, marking the fourth consecutive quarter of a bottom-line decline for the index. Consequently, while estimates for the second quarter are expected to decline further, magnitude of the decline is expected to be lower.
What Should You Expect from These Healthcare Stocks?
On a positive note, the medical sector – one of the six sectors slated to record earnings growth this season – expects an increase of 1.9% in earnings and 9.0% in revenues for the first quarter of 2016.
While Johnson & Johnson (NYSE:JNJ) kick-started the season on a positive note as earnings surpassed expectations and the company raised its outlook for the year, Swiss oncology major Novartis (NYSE:NVS) missed expectations.
Nevertheless, let us find out what we can expect from a couple of healthcare stocks reporting early next week.
Pharmacy benefit manager (PBM) Express Scripts Holding Company (NASDAQ:ESRX) , scheduled to report first-quarter results on Apr 25, is expected to benefit from increased generic utilization, shift toward mail orders, strong specialty growth and an aging population. However, investor focus will remain on the status of Express Scripts' contract with Anthem, Inc. (NYSE:ANTM) .
For the first quarter, Express Scripts expects earnings per share in the range of $1.18–$1.22 and adjusted claims in the range of 315 million to 325 million. So far, the company has an impressive track record. It comfortably beat expectations in three of the four trailing quarters, and reported in-line results in the other. However, its current Earnings ESP of 0.00% and a Zacks Rank #3 (Hold) make surprise prediction difficult this quarter (Read more: Express Scripts Q1 Earnings: Stock to Disappoint?)
Epizyme, Inc. (NASDAQ:EPZM) is expected to report first-quarter results on Apr 26. Being a development-stage company, the company does not have any approved product in its portfolio yet. Its top line, thus, comprises collaboration revenues only. Its lead candidate, tazemetostat (an EZH2 inhibitor), is being evaluated for relapsed or refractory non-Hodgkin lymphoma (NHL) and advanced solid tumors. Hence, investor focus will remain on pipeline updates.
While Epizyme’s Zacks Rank #2 (Buy) increases the predictive power of the ESP, the company’s breakeven ESP makes surprise prediction difficult. (Read more: Epizyme Q1 Earnings: Can the Stock Surprise?)
So, do check back on our full earnings release articles on these stocks to see how they’ve finally fared.
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