GlaxoSmithKline (GSK) Q3 Earnings: What's In The Cards?

GlaxoSmithKline plc (NYSE:GSK) is scheduled to report third-quarter 2016 results on Oct 26. Last quarter, the company delivered a positive earnings surprise of 27.27%. Let’s see how things are shaping up for this quarter.

Factors at Play

Glaxo focuses on its three core business – Pharmaceuticals, Vaccines and Consumer Healthcare. On the second-quarter conference call, the company lifted its outlook for 2016. At constant exchange rates, the core earnings growth rate is now expected in the range of 11–12% (previous projections: 10–12%).

The Pharmaceuticals segment is expected to continue being driven by strong sales of new HIV products, Tivicay and Triumeq. Sales of newly launched respiratory drugs, Relvar/Breo, Incruse, Anoro, Arnuity and Nucala are expected to offset the declines in Seretide, Advair and Avodart.

The Vaccines segment will benefit from continued uptake of meningitis vaccines. Bexsero and Menveo (acquired from Novartis AG (NYSE:NVS) ) are expected to witness growth during the quarter as well. However, the segment is expected to remain volatile on a quarterly basis (particularly in the emerging markets) due to factors like the timing of government tenders.

In the second quarter, Consumer Healthcare saw strong performance across the Oral health and Wellness power brands in all regions, particularly the International market. Moreover, strong growth in Flonase, which was backed by the launch of a number of innovative line extensions, drove results in the last quarter. The trend is expected to continue in the to-be-reported quarter as well.

Notably, currency movement is expected to provide tailwinds to third-quarter sales.

We expect investors to focus on the company’s performance, sales ramp-up of newly launched drugs and pipeline updates on Glaxo’s third-quarter call.

Surprise History

Glaxo’s performance has been pretty good so far, with the company’s earnings beating expectations thrice in the four trailing quarters. Overall, the company has delivered an average positive surprise of 11.59%.

Earnings Whispers

Our proven model does not conclusively show that Glaxo is likely Earnings ESP to beat earnings 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. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Glaxo is -4.00% as the Most Accurate estimate stands at 72 cents while the Zacks Consensus Estimate is higher at 75 cents.

Zacks Rank: Although Glaxo’s Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are a couple of health care stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Amgen Inc. (NASDAQ:AMGN) is scheduled to report results on Oct 27. The company has an Earnings ESP of +1.79% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for ImmunoGen, Inc. (NASDAQ:IMGN) is +5.41% and it carries a Zacks Rank #3. The company is scheduled to release earnings on Oct 28.

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