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Is a Beat in Store for AbbVie (ABBV) This Earnings Season?

Zacks Equity Research

We expect AbbVie Inc. ABBV to beat expectations when it reports second-quarter 2019 results on Jul 26, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 3.88%.

Shares of AbbVie have declined 25.6% so far this year compared with the industry‘s decrease of 1.1%.

Notably, AbbVie’s earnings history is decent with the pharmaceuticals company outpacing estimates in three of the last four quarters with the average beat being 2.58%.

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

Factors to Consider

Although U.S. sales of AbbVie’s flagship product, Humira are expected to increase in the soon-to-be-reported quarter, international sales are likely to decline significantly. The drop in international sales is likely to be due to the launch of biosimilars in Europe. The drug achieved modest growth rate in the first quarter amid competition from branded as well as biosimilar drugs.

The company’s key oncology drug, Imbruvica, which is marketed in partnership with J&J JNJ, is on a growth path, given impressive adoption in first-line chronic lymphocytic leukemia. The increased adoption is expected to aid second-quarter results. Label expansions of another oncology drug, Venclexta, drove sales in the first quarter. We expect a similar trend in the soon-to-be reported quarter.

However, AbbVie’s new HCV drug, Mavyret recorded a decline in the first quarter, following an impressive performance in 2018 due to lower sales in international markets. We will have to wait and see whether sales improve in international markets this time around.

AbbVie expects earnings per share for the quarter to be in the range of $2.20 and $2.22. Revenues are expected to be approximately $8.1 billion. However, currency movement is likely to have an unfavorable impact of nearly 1.5%.

In the second quarter, adjusted operating margin is expected to be similar to the first-quarter level of 48.1%, which is higher than the full-year expectation of just above 47%. This is because the company targets higher spending to support product launches in the second half.

In a major move last month, AbbVie offered to acquire Botox-maker Allergan AGN for $63 billion. However, investors are skeptical about the value-addition and synergies from the deal. Although AbbVie held a conference call last month to discuss the deal, we expect investors to have several questions related to the proposed mega merger on the earnings call.

Why a Likely Positive Surprise?

Our proven model indicates that AbbVie is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate ($2.22) and the Zacks Consensus Estimate ($2.21), stands at +0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AbbVie has a Zacks Rank #2. The combination of a positive Earnings ESP and a favorable Zacks Rank makes us reasonably confident of an earnings beat.

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

AbbVie Inc. Price and Consensus

 

AbbVie Inc. Price and Consensus

AbbVie Inc. price-consensus-chart | AbbVie Inc. Quote

Another Stock That Warrants a Look

Here is another drug stock that you may also want to consider, as our model shows that it has the right combination of elements to post an earnings beat in its upcoming release.

Bristol-Myers Squibb BMY has an Earnings ESP of +0.28% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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