4 Large-Cap Drug Stocks To Buy Post Q1 Earnings
Zacks Investment Research | May 18, 2017 08:45AM ET
The first quarter earnings season is drawing to a close with 90.8% of S&P 500 stocks having reported results as of May 12, 2017. 13 of the 16 Zacks sectors recorded earnings growth with total earnings increasing 13.9% from the year-ago period on revenue growth of 7.9%. While 72.2% beat earnings estimates, 66.1% topped revenue expectations with 51.8% surpassing both.
The Medical sector is among the sectors that has consistently been recording earnings growth over the last few quarters. The sector, which had recorded earnings growth of 4.5% on revenue growth of 5.2% in Q4, has recorded earnings growth of 5.6% on the back of revenue growth of 6% so far in Q1. A look at the beat ratio shows earnings beat of 85.7% and revenue beat of 69.4%.
The pharma sector specifically had a mixed quarter with most companies topping earnings expectations but missing on revenues. The first quarter is usually a slow one for pharma and biotech companies for reasons like inventory destocking, fewer shipping days and the Medicare donut hole. Higher discounting in managed care and government channels for preferred access physicians, lower prices for certain drugs, softer scrip growth in the U.S., and higher sales occurring in the Medicaid channel are some of the factors that affected drug sales of pharma and biotech companies. Unfavorable currency movement also played a role.
Over the last three years, revenues in the large cap pharma sector have been on an upward trajectory after being impacted by several factors including the genericization of key blockbuster drugs. Evolving pipelines, increasing contribution from new drugs and the approval of breakthrough treatments are some of the factors that has put this sector back on the growth trajectory.
Moreover, the Zacks-categorized Large-Cap Pharmaceutical industry is among the top 14% of the 256 Zacks-ranked industries. The industry has outperformed the broader market (S&P 500) year-to-date (YTD) as well.
Here is a look at 4 large-cap drug stocks that delivered positive earnings surprises in the first quarter and are witnessing upward revisions in earnings estimates for 2017. All these companies are either Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) stocks -- you can see VGM Score of “B”. Our research shows that stocks with a VGM Score of “A” or “B” when combined with a Zacks Rank #1 or #2 offer the best upside potential.
Get The News You Want
H. Lundbeck A/S (OTC:HLUYY) : Denmark-based Lundbeck specializes in psychiatric and neurological disorders. YTD, the company has outperformed the Zacks-categorized Large-Cap Pharmaceutical industry with shares gaining 25.4%. In addition to delivering a positive earnings surprise of 64.52% in the first quarter, Lundbeck raised its outlook for the year. Lundbeck is also a Zacks Rank #1 stock with a VGM score of “B”. 2017 earnings estimates are up 2.9% over the last 7 days.
Merck & Co., Inc. (NYSE:MRK) : Kenilworth, NJ-based Merck is known for its strong presence in the pharmaceuticals and vaccines market. The company also has a presence in the animal health segment. Some of the better known products in Merck’s portfolio include Keytruda, Gardasil, Januvia/Janumet, Isentress, Vytorin/Zetia and Remicade among others. Merck, a Zacks Rank #2 stock, has consistently surpassed earnings expectations over the last four quarters with an average surprise of 4.36%. In addition to delivering a positive earnings surprise of 6.02% in Q1, Merck narrowed and raised its outlook for the year. Earnings estimates for 2017 are up 0.3% over the last 30 days. Estimated earnings growth for the current year is 1.7%. New product launches especially Keytruda as well as the strong performance of the base business including the animal health segment should help the company combat the impact of generic competition.
Zoetis Inc. (NYSE:ZTS) : Parsippany, NJ-based Zoetis is a leading animal health company focused on the discovery, development, manufacturing and marketing of veterinary vaccines and medicines, complemented by diagnostic products, genetic tests, and biodevices. YTD, the company has outperformed the Zacks-categorized Medical-Drugs industry with shares gaining 11.6% compared to the industry gain of 8.1%. The Zacks Rank #2 stock surpassed earnings expectations in each of the last four quarters with an average positive surprise of 9.82% while estimated earnings growth for the current year is 19.2%. Earnings estimates for 2017 are up 0.9% over the last 30 days.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.