The third-quarter reporting cycle for the Medical sector has just started. The sector comprises pharma/biotech and medical device companies.
Drug and biotech stocks’ quarterly results are likely to reflect the positive impact of new drug approvals and label expansions of already marketed drugs. However, rising generic competition for legacy drugs may have offset growth of newer drugs. We note that COVID-19 related restrictions had marred second-quarter results of many of these companies. However, gradual re-opening of economies across globe is likely to have helped these companies partially or completely recoup second-quarter losses in the third quarter.
Per the Earnings Trends report as of Oct 21, 10.9% of the companies in the Medical sector, constituting nearly 32.6% of the sector’s market capitalization, reported earnings. All the companies that have reported so far from the Medical sector beat earnings as well as revenue estimates. Earnings are up 5.4% year over year on 5.1% higher revenues.
Overall, third-quarter earnings and sales growth for this sector is expected to be 5.1% and 9.1%, respectively.
Earlier this month, three big pharma/biotech companies reported third-quarter results. Sales and earnings of pharma-giant Johnson & Johnson JNJ were above market expectation. The company also raised its earnings and sales guidance for the second time this year on the back of strong performance by newer drugs in its Pharmaceutical segment. Third-quarter results for Biogen and Roche reflected some recovery. While sales and earnings for Biogen declined year over year in the third quarter, both metric beat estimates. Moreover, Biogen lowered its sales guidance for the year due to increased generic competition for Tecfidera. Meanwhile, Roche reported 1% increase in sales compared with the year-ago quarter. We note that sales of Biogen and Roche were negatively impacted by generic/biosimilar competition.
Let’s analyze four pharma/drug/biotech companies that are set to report third-quarter 2020 results on Oct 28.
British multinational pharmaceutical company, GlaxoSmithKline is scheduled to report before market open.
The company’s performance has been mixed so far, with earnings beating estimates in two of the trailing four quarters and missing the same twice. It has a four-quarter positive surprise of 7.33%, on average. In the last reported quarter, the company’s earnings missed estimates by 2.04%.
For the quarter to be reported, Glaxo has an Earnings ESP of +7.23% and a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Zacks Consensus Estimate for earnings stands at 78 cents per ADS.
During the third quarter, growth in Glaxo’s revenues is likely to have been driven by Pharmaceutical and Consumer Healthcare segments, partially offset by weaker vaccine sales. Meanwhile, the impact of Advair generics and rising competition in the HIV segment, especially for three-drug regimens, might have hurt sales. (Read more: Is a Beat in Store for Glaxo This Earnings Season?)
Amgen, which has an impressive track record so far, is also scheduled to report results after market close.
The company beat earnings estimates in each of the trailing four quarters with the average being 8.58%. In the last reported quarter, the company’s earnings beat estimates by 11.55%. For the quarter to be reported, Amgen has an Earnings ESP of -0.36% and a Zacks Rank #3. The Zacks Consensus Estimate for earnings stands at $3.75 per share.
Sales of several of Amgen’s drugs like Prolia, Xgeva, Kyprolis were negatively impacted in the second quarter due to interruptions to physician-patient interactions amid COVID-19 related restrictions. It remains to be seen if sales of these drugs improved in the third quarter amid gradual removal of restrictions in the United States and other countries when the company reports. Investors will also be keen to find out the impact of rising competition on Amgen’s biosimilars drugs. (Read more: Amgen to Report Q3 Earnings: What's in the Cards?)
Gilead Sciences GILD
Biotech major Gilead is scheduled to report results after market close.
In the last reported quarter, the company missed earnings expectations by 23.97%. It has a four-quarter negative surprise of 10.21% on average.
For the quarter to be reported, Gilead has an Earnings ESP of +3.08% and a Zacks Rank #3, suggesting an earnings beat. The Zacks Consensus Estimate for earnings stands at $1.83 per share.
Gilead’s revenues are likely to have been boosted by strong demand for its antiviral drug, remdisivir, which was the only drug with Emergency Use Authorization for treating COVID-19 during the calendar third quarter. Meanwhile, third-quarter sales in the HIV segment of the company are likely to have stabilized after lower sales in the second quarter. However, declining trend in HCV sales is likely to have continued in the soon-to-be-reported quarter. (Read more: Will Coronavirus Woes Affect Gilead's Q3 Earnings?)
United Therapeutics UTHR
United Therapeutics, which has a mixed track record so far, will release results before market open. The company’s earnings in the last reported quarter were in line with Zacks Consensus Estimates. Moreover, it beat on earnings in three of the last four quarters, the average being 1.40%.
For the quarter to be reported, United Therapeutics has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimate for earnings stands at $2.41 per share.
Demand for United Therapeutics’ treprostinil medicines like Remodulin, Tyvaso and Orenitram is likely to have driven revenues for the company in the third quarter. Although total new prescriptions for these drugs declined in the second quarter due to COVID-19 related restrictions, an improvement is expected in the third quarter. However, continued generic competition for Adcirca is likely to have partially offset the gains from the treprostinil medicines.
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