Q2 Earnings Surprise In The Cards, Healthcare ETFs To Buy

The healthcare space has been on a smooth ride over the past three months thanks to the dual tailwinds of encouraging industry fundamentals including M&A, and the sector’s defensive tilt. Trump’s move to abandon the previously proposed elimination of rebates from government drug plans also added to the strength.

Popular ETFs like Health Care Select Sector SPDR Fund XLV, Vanguard Health Care ETF (ASX:VHT) , iShares U.S. Healthcare ETF IYH andFidelity MSCI Health Care Index ETF FHLC are up more than 7% each. The strength is likely to continue with some big names like Pfizer (NYSE:PFE) , Merck (NYSE:MRK) , Amgen (NASDAQ:AMGN) , AbbVie (NYSE:ABBV) , Gilead Sciences (NASDAQ:GILD) and Bristol-Myers Squibb (NYSE:BMY) lined up to report this week and in the next. All these stocks collectively account for 23.6% share in XLV, 21.8% in IYH, 20.5% in VHT and 20% in FHLC (read: Healthcare ETFs in Focus on JNJ's Q2 Earnings Beat).

Let’s dig deeper into the earnings picture of these companies, which will drive the performance of the above-mentioned funds in the coming days:

According to the our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while Zacks Rank #4 or 5 (Sell rated) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Pfizer has a Zacks Rank #3 and an Earnings ESP of -2.91%, indicating lower chance of beating estimates this quarter. The stock saw negative earnings estimate revision of a penny for to-be-reported quarter over the past 30 days. It delivered an average positive earnings surprise of 5.65% for the past four quarters and has a VGM Score of C. Pfizer is scheduled to report earnings on Jul 30, before the opening bell.

Merck is expected to report results on Jul 30 before market open. It has a Zacks Rank #2 and an Earnings ESP of -0.22%. The stock delivered a positive earnings surprise in the last four quarters, with the average beat being 5.67%. It witnessed positive earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. Merck has a VGM Score of C.

Amgen carries a Zacks Rank #3 and has an Earnings ESP of +1.05%, indicating reasonable chance of beating estimates this quarter. The earnings surprise track over the past four quarters is strong, with the average positive surprise being 6.20%. Amgen has witnessed negative earnings estimate revision of a couple of cents over the past 30 days for the quarter to be reported. The stock has a VGM Score of D. Amgen will report earnings on Jul 30 after market close (read: ETFs to Shine as Trump Tosses Drug Rebate Curb Plan).

AbbVie has a Zacks Rank #2 and an Earnings ESP of +0.12%, indicating a good chance of beating estimates this quarter. The company delivered a positive earnings surprise in the last four quarters, with the average beat being 2.58%. It saw no earnings estimate revision over the past month for the to-be-reported quarter. The stock has a top VGM Score of A. The company is scheduled to report on Jan 26 before the opening bell.

Gilead is expected to release earnings on Jul 30 after market close. It has a Zacks Rank #3 and an Earnings ESP of +3.69%. Gilead delivered average positive earnings surprise of 6.86% over the last four quarters and saw positive earnings estimate revision of a penny over the past month for the to-be-reported quarter. It has a VGM Score of B (read: Best & Worst ETFs Halfway Through July).

Bristol-Myers will likely report earnings on Jul 25 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of +0.28%. The stock delivered an average positive earnings surprise of 11.85% over the past four quarters, and witnessed positive earnings estimate revision of a penny for the to-be-reported quarter in a month. It has a VGM Score of A.

Summing Up

With earnings surprise in cards, the healthcare sector is expected to witness earnings growth of 1.7% in the second quarter, suggesting continued outperformance for healthcare ETFs. In particular, FHLC has a Zacks ETF Rank #3 while the remaining three have a Zacks ETF Rank #2 (see: all the Healthcare ETFs here).

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Bristol-Myers Squibb Company (BMY): Free Stock Analysis Report

Pfizer Inc. (PFE): Free Stock Analysis Report

Merck & Co., Inc. (MRK): Free Stock Analysis Report

AbbVie Inc. (ABBV): Free Stock Analysis Report

Health Care Select Sector SPDR Fund (XLV): ETF Research Reports

Fidelity MSCI Health Care Index ETF (FHLC): ETF Research Reports

Vanguard Health Care ETF (VHT): ETF Research Reports

iShares U.S. Healthcare ETF (IYH): ETF Research Reports

Amgen Inc. (AMGN): Free Stock Analysis Report

Gilead Sciences, Inc. (GILD): Free Stock Analysis Report

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Zacks Investment Research