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What's in the Cards for Glaxo (GSK) This Earnings Season?

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GlaxoSmithKline plc GSK is scheduled to report first-quarter 2018 results on Apr 25 before market open. Last quarter, the company delivered a positive surprise of 4.35%.

Shares of Glaxo shares have outperformed the industry so far this year. The stock has gained 12.9% against the industry’s decline of 4.3%.

 

Glaxo’s earnings performance has been pretty impressive so far. The company’s bottom line surpassed estimates thrice in the trailing four quarters and meeting the same in the remaining one. Overall, the company came up with an average beat of 2.12%.

Let’s see, how things are shaping up for this quarter.

Factors to Consider                                           

Glaxo should continue to see strong sales in its Pharmaceuticals and Vaccines business segment.

The company’s Pharmaceuticals segment is expected to be driven by solid sales of new HIV products, Tivicay and Triumeq. Sales of lately launched respiratory drugs, the Ellipta products and Nucala are likely to offset the declines in sales of older respiratory products, namely Seretide, Advair and Avodart.  On fourth-quarter 2017 conference call, Glaxo stated that its inhaled respiratory products, particularly the older ones, are grappling with persistent competitive and pricing pressures, expected to continue through 2018.

Meanwhile, many of Glaxo’s key drugs, Lovaza and Avodart, are facing a sales decline due to generic competition, a trend we expect to carry on in Q1 as well. It is important to note that pricing dynamics and rivalry woes are hurting the sales of the company’s top-selling drug, Advair, in the United States while generic competition is hampering the same in Europe.

The Vaccines segment is likely to consistently benefit from a sustained uptake of meningitis vaccines like Bexsero and Menveo {acquired from Novartis AG NVS}.

Moreover, Glaxo’s Shingrix vaccine (prevention of shingles), approved in the United States last October generated better-than-expected initial sales in the previous quarter. In the upcoming quarter, we expect a significant contribution from the drug to the company’s sales. Sales gained from a favorable recommendation from the U.S. Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices over Merck’s Zostavax. Moreover, Shingrix was approved in the EU as well as in Japan last month for the given indication, which might fetch in some additional sales.

Additionally, in 2017, Glaxo received approvals for two other key new drugs, namely Trelegy Ellipta, which provides three medicines in a single inhaler to treat COPD and Juluca (dolutegravir and rilpivirine), the first 2-drug regimen, once-daily, single pill for HIV. These are also expected to drive the company’s top line.

Last month, Glaxo announced that it has entered into an agreement with Novartis to buy out the latter’s stake in their Consumer Healthcare joint venture. With this acquisition, Glaxo will now stake a 100% ownership claim over its Consumer Healthcare unit including products such as Sensodyne and Flonase. We expect management to further discuss about the deal in the to-be-reported quarter.

Importantly, sales growth is on the wane in the Consumer Healthcare Segment due to generic competition to Transderm Scop, divestments as well as the impact of the general sales tax in India. The Consumer Healthcare segment is anticipated to remain under stress in the first quarter and is not much predicted to push up the sales.

Meanwhile, cost savings from restructuring and continued efficiencies should boost operating profits.

Earnings Whispers

Our proven model does not conclusively show that Glaxo is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Glaxo has an Earnings ESP of 0.00% because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 70 cents.You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

Zacks Rank: Glaxo carries a Zacks Rank #3, which increases the predictive power of ESP. However, a company’s 0.00% ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

GlaxoSmithKline plc Price and EPS Surprise

GlaxoSmithKline plc Price and EPS Surprise | GlaxoSmithKline plc Quote

 

Stocks to Consider

Here are a couple of health care stocks worth considering with the right combination of elements to surpass estimates this time around:

Pfizer Inc. PFE is scheduled to release results on May 1. The company has an Earnings ESP of +2.28% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Merck & Co., Inc. MRK is scheduled to report earnings on May 1. The company has an Earnings ESP of +0.27% and a Zacks Rank of 2.

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