5 Drug Stocks Well Poised To Beat Q2 Earnings Estimates
Zacks Investment Research | Jul 13, 2017 02:31AM ET
The pharma/biotech sector has picked up this year after being battered by the drug pricing controversy in 2016. The first half has been pretty strong for companies in the space.
The NYSE ARCA Pharmaceutical Index has risen almost 9.8% year to date (YTD) after declining almost 10% last year. NASDAQ Biotechnology Index is up 17.7% YTD after sliding 19.1% in 2016.
The sector does have its share of challenges in the form of rising competition, high profile pipeline setbacks, slowdown in growth of mature products and the loss of exclusivity for certain key drugs. Though the drug pricing issue still prevails, investors, lately, are hoping that steep pricing will not be as damaging as feared previously.
Nonetheless, strong performance of newer drugs, evolving pipelines, impressive clinical trial results, new drug approvals, continued strong performance of legacy products and rising demand are some of the factors that promise a sustained recovery in the sector.
Meanwhile, there have been many more FDA drug approvals so far this year than in 2016. A total of 23 drugs have gained FDA approval YTD, beating the total of 22 for the whole of 2016. With acceleration in the drug approval process, more innovation and a surge in new drug approvals are expected.
Though M&A activities and collaborations/deals have slowed down this year, chances are that they will pick up in the second half. With President Trump promising a major tax reform that will allow companies to bring back cash held overseas, acquisition activities are expected to pick up pace. Then again, the number of deals will still be less than the pharma industry, as it has been for many years.
Finally, the Republican administration’s vow to "repeal and replace" Obamacare bodes well for the sector’s growth.
How to Pick Likely Q2 Winners
Given the enormity of the healthcare space, selecting stocks that have the potential to beat estimates could appear to be quite daunting. But our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive .
The Zacks Consensus Estimate for the second quarter is 87 cents per share. The company has consistently topped earnings expectations. In fact, Merck’s earnings surpassed expectations in each of the last four quarters, with an average positive surprise of 4.36%.
Merck is scheduled to report results on Jul 28.
Our next choice is biotech major, Celgene Corporation (VNDA ) makes it to our list of likely outperformers in the second quarter by virtue of its Zacks Rank #3 and an Earnings ESP of +30.0%.
Get The News You Want
The Zacks Consensus Estimate is pegged at a loss of 20 cents per share. Vanda is expected to report its results on Jul 26.
Bottom Line
Challenges in the form of competitive and pricing pressure will remain in the healthcare sector. However, a number of companies in the space have fared well. Picking some outperformers from the space, backed by a solid Zacks Rank and a positive Earnings ESP, could lead investors to gain this earnings season.
More Stock News: 8 Companies Verge on Apple-Like Run
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