The Q3 earnings season is in full swing with the healthcare sector showing the third highest growth at this stage, trailing materials and business services. Earnings from 22% of the sector’s market capitalization that have reported so far are up 15.9% with a beat ratio of 83.3% on revenue growth of 8.8% and revenue surprise of 66.7%, as per the Earnings Trends.
In particular, robust earnings reports from the leading drug maker Johnson & Johnson (NYSE:JNJ) and the largest U.S. health insurer UnitedHealth Group (NYSE:UNH) spread strong optimism in the sector last week (J&J Beats on Q3 Earnings: Should You Buy Healthcare ETFs?).
As a result, healthcare ETFs saw smooth trading, with the popular funds – Health Care Select Sector SPDR Fund XLV, Vanguard Health Care ETF VHT, iShares U.S. Healthcare ETF IYH and Fidelity MSCI Health Care Index ETF FHLC – gaining nearly 0.2% over the past five days. Will the positive trend continue in the weeks ahead given that the sector is expected to post Q3 earnings growth of 3.7% and revenue growth of 7.4%?
Let’s delve into the earnings picture of some of the other largest companies in the healthcare space that would drive the performance of the above-mentioned funds in the coming days. Some of the big names include Pfizer (NYSE:PFE) , Merck (NYSE:MRK) , Amgen (NASDAQ:AMGN) , AbbVie (NYSE:ABBV) , Gilead Sciences (NASDAQ:GILD) and Bristol-Myers Squibb Company (NYSE:BMY) that dominate these fund’s portfolio. All these stocks collectively account for the maximum portion, with 28.6% share in XLV, 27.4% in IYH, 25% in VHT and 24.6% in FHLC.
Inside Our Surprise Prediction of These Stocks
Pfizer has a Zacks Rank #3 (Hold) and an Earnings ESP of -1.59%, indicating a lower probability of beating estimates this quarter. According to the our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), #2 or #3 when combined with a positive Earnings ESP has chances of an earnings beat, while a Zacks Rank #4 or #5 (Sell rated) are best avoided. Pfizer delivered positive earnings surprises in the last four quarters, with an average beat of 11.16%.
Additionally, the Zacks Consensus Estimate for third-quarter 2016 is 63 cents, up a penny over the past three months. Further, the stock has a solid Value and Momentum Style Score of B and A, respectively, while a Growth Style Score of C looks unimpressive. Pfizer is scheduled to report its earnings on November 1 before the opening bell.
Merck is expected to report its results on October 25 before market open. It has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%, which makes surprise prediction difficult. The stock saw no earnings estimate revision over the past 90 days for the to-be-reported quarter. The drug maker delivered positive earnings surprises in the last four quarters, with an average beat of 3.37%. The stock has an unfavorable Value and Growth Style Score of C and D, respectively, while a Momentum Style Score of B looks good (read: 5 ETFs to Buy as Election Uncertainty Looms).
Amgen has a Zacks Rank #3 and an Earnings ESP of +1.08%, indicating a good chance of beating estimates this quarter. The earnings surprise track over the past four quarters is robust with an average positive surprise of 11.55%. The stock also witnessed positive earnings estimate revision of a penny over the past 90 days for the yet-to-be-reported quarter. Additionally, the stock has a solid Value Style Score of B but an unfavorable Growth and Momentum Style Score of C and D, respectively. Amgen will reports its earnings on October 27 after market close.
AbbVie has a Zacks Rank #3 and an Earnings ESP of +0.83%, indicating a reasonable chance of beating estimates this quarter. The company delivered positive earnings surprises in the last four quarters, with an average beat of 3.32%. Moreover, it saw solid positive earnings estimate revision of three cents over the past three months for the to-be-reported quarter. Further, the stock has a top Momentum Style Score of A and a Value Style Score of B while the Growth Style Score is unimpressive at C. The company is schedule to report on October 28 before market open.
Gilead is expected to release its earnings on November 1 after market close. It has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -0.36%. Gilead saw a negative earnings estimate revision of 19 cents over the past three months for the to-be-reported quarter but delivered positive earnings surprises in three of the last four quarters, with an average beat of 4.08%. Though it has a solid Value and Growth Style Score of B each, the Momentum Style Score of F is an eyesore (read: Prepare for a Clinton Presidency with These Stocks & ETFs).
Bristol-Myers will likely report its earnings on October 27 before the opening bell. It has an unfavorable Zacks Rank #4 but an Earnings ESP of +3.08%. The stock delivered positive earnings surprises over the past four quarters with an average beat of 15.56% and saw positive earnings estimate revision of a penny for the to-be-reported quarter. However, it has an unfavorable Value, Growth and Momentum Style Score of C, F and C, respectively.
Summing Up
Given that some companies have an unfavorable Zacks Rank and a lower probability of beating this quarter, healthcare ETFs might struggle to hold onto gains in the coming days. However, the above-mention ETFs have a favorable Zacks ETF Rank of #1 (Strong Buy) in case of XLV, VHT and IYH and #2 for FHLC (see: all the Healthcare ETFs here).
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BRISTOL-MYERS (BMY): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
MERCK & CO INC (MRK): Free Stock Analysis Report
GILEAD SCIENCES (GILD): Free Stock Analysis Report
AMGEN INC (AMGN): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
ABBVIE INC (ABBV): Free Stock Analysis Report
SPDR-HLTH CR (XLV): ETF Research Reports
VIPERS-HLTH CR (VHT): ETF Research Reports
ISHARS-US HLTHC (IYH): ETF Research Reports
FID-H CARE (FHLC): ETF Research Reports
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