The drug/biotech sector somewhat recovered in 2019 after a sluggish second half of 2018, mainly owing to pharma merger and acquisition (M&A) deal announcements. A key announcement was Bristol-Myers’ BMY offer to acquire Celgene CELG for a whopping $74 billion, one of the biggest mergers in the industry. Other important acquisition announcements include Lilly’s purchase of small cancer biotech, Loxo Oncology, and Pfizer’s offer to buy Array Biopharma.
The Large Cap Pharmaceuticals industry (comprising some of the biggest drugmakers in the world) has gained 7.2% in the past six months compared with the broader Medical sector’sincrease of 1.9%.
However, the riskier Medical-Biomedical and Genetics industry, which includes large and small biotech companies, has underperformed the Medical sector. The biotech space has declined 8.2% in the past six months, probably because of some pipeline setbacks.
Other than rampant M&A activities rising demand for new products, innovation and product line extensions in important therapeutic areas, strong clinical study results, and frequent FDA approvals (15 new drugs so far in 2019) keep driving growth for the drug/biotech industry despite broader macro issues and the industry’s own challenges.
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Headwinds for the industry include government scrutiny of high drug prices, pricing and competitive pressure, generic competition for blockbuster treatments, slowdown in sales of some of the most high-profile older drugs and major pipeline setbacks.
However, pipeline success in innovative and important therapeutic areas, cost control, share repurchases, product introductions, heightened M&A activities, and appropriate utilization of cash should boost the drug/biotech industry as the year progresses.
Q2 Results So Far
The drug/biotech space has performed reasonably well so far in the reporting cycle. While a few companies beat only earnings estimates, some topped on both counts. A number of companies raised their earnings expectations for 2019, and some raised both earnings and sales guidance.
According to the latest Earnings Preview, 22.2% of the Medical (includes drug, biotech as well as medical device companies) sector’s total market cap in the S&P 500 has released their Q2 results. Total earnings for these Medical companies are up 18.9% from the year-ago quarter on 8.9% higher revenues, with 100% beating EPS estimates and 66.7% beating revenue estimates.
How to Pick Probable Q2 Winners?
There are multiple drug/biotech companies poised to beat on second-quarter earnings. However, given the large number of drug/biotech firms, the task of selecting stocks with possibilities to surpass expectations appear quite daunting.
With the help of the Zacks Stock Screener, we have zeroed in on five drug/biotech stocks that carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. It is a valuable tool for investors looking for stocks with the maximum potential to beat estimates. Our research shows that with this combination, chances of a positive surprise are as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
5 Stocks Set to Outperform
Gilead Sciences Inc. GILD has an Earnings ESP of +3.20% and a Zacks Rank #2. The Zacks Consensus Estimate for second-quarter 2019 earnings is pegged at $1.74. The company’s earnings beat estimates in three of the trailing four quarters, with average positive surprise of 6.86%. It is scheduled to report on Jul 30. You can see the complete list of today’s Zacks #1 Rank stocks here.
Regeneron Pharmaceuticals Inc. REGN has an Earnings ESP of +6.25% and a Zacks Rank #3. The Zacks Consensus Estimate for second-quarter 2019 earnings stands at $5.58. The company’s earnings topped estimates in three of the last four quarters, the average positive surprise being 7.12%. The company is scheduled to release earnings on Aug 6, before market open.
Amgen Inc. AMGN has an Earnings ESP of +1.17% and a Zacks Rank #3. The Zacks Consensus Estimate for second-quarter 2019 earnings is projected at $3.56. The company’s earnings trumped estimates in the preceding four quarters, the average positive surprise being 6.20%. It is scheduled to announce second-quarter financial numbers on Jul 30, after market close.
Allergan plc. AGN has an Earnings ESP of +3.87% and a Zacks Rank #3. The Zacks Consensus Estimate for second-quarter 2019 earnings is projected at $4.33. The company’s earnings beat estimates in the trailing four quarters, with average positive surprise of 5.79%.
Incyte Corporation INCY has an Earnings ESP of +3.73% and a Zacks Rank #2. The Zacks Consensus Estimate for second-quarter 2019 earnings is projected at 48 cents. The company’s earnings trumped estimates in one of the preceding four quarters, the average positive surprise being 8.42%. It is scheduled to announce earnings numbers on Jul 30, before market open.
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Date: July 29, 2019