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Will Biotech ETFs Continue to Rally in Q1 Earnings?

Sweta Jaiswal, FRM

First-quarter earnings results have been pretty impressive so far. Notably, 79.2% of the 77 S&P members that have reported Q1 results till Apr 18 have crushed earnings estimates while 54.5% have surpassed the revenue mark. 

Fundamentals of the U.S. economy are decent as evident from rising wages, increasing consumer spending, solid manufacturing and strengthening labor market. Also, moderately dovish Fed minutes from the latest meeting reflect less chances of a rate hike in 2019. Moreover, the U.S. government recently postponed a tariff hike on Chinese imports, suggesting improving trade relations between the nations.

In such a scenario, investors with money parked in the biotech industry must be excited to gauge the sector’s first-quarter 2019 performance.

The biotech industry has kept its promise for solid returns so far. The rally in some major biotechnology indexes reflects the same. In this context, the NASDAQ Biotechnology Index has returned 10.4% year to date. Following the trend, S&P Biotechnology Select Industry Index has returned around 20.8%. Increasing M&A deals, growing AI dominance and favorable regulatory tidings continue to boost the biotech market (read: Biotechnology Market on a Tear: 5 ETFs in Spotlight).

Moreover, broader biotech ETFs such as iShares Nasdaq Biotechnology ETF IBB, VanEck Vectors Biotech ETF BBH, ProShares Ultra Nasdaq Biotechnology ETF BIB and First Trust Amex Biotechnology Index FBT have gained 10.75%, 10.77%, 19.6% and 12.8%, respectively, so far this year. The strength is likely to continue with some big names like Amgen AMGN, Gilead Sciences GILD and Alexion Pharmaceuticals ALXN lined up to report this week. These stocks collectively account for 20.2% share in IBB, 19.6% in BBH, 20.1% in BIB and 9.94% in FBT.

Let’s dig deeper into the earnings picture of these companies, which will drive the performance of the above-mentioned funds in the coming days (see: all the Healthcare ETFs here):

According to our proven Zacks model , a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP increases chances of an earnings beat, while Zacks Rank #4 or 5 (Sell-rated) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today's Zacks #1 Rank stocks here.

Is There a Surprise in the Cards?

Amgen carries a Zacks Rank #3 and has an Earnings ESP of -0.06%. The company has a four-quarter average positive surprise of 7.26%. It has witnessed negative earnings estimate revision of 9 cents over the past 60 days for the quarter to be reported. The stock has a VGM Score of C. Amgen will report earnings on Apr 30, after markets close.

Amgen Inc. Price and EPS Surprise

Amgen Inc. Price and EPS Surprise | Amgen Inc. Quote

 

Gilead is expected to release earnings on May 2, after market close. It has a Zacks Rank #2 and an Earnings ESP of +1.37%. Gilead has average positive earnings surprise of 1.99% for the last four quarters and has seen negative earnings estimate revision of a penny over the past two months for the to-be-reported quarter. It has a VGM Score of C.

Gilead Sciences, Inc. Price and EPS Surprise

Gilead Sciences, Inc. Price and EPS Surprise | Gilead Sciences, Inc. Quote

 

Alexion Pharmaceuticals has a Zacks Rank #3 and an Earnings ESP of +1.17%,. The company has a four-quarter average earnings beat of 17.1%. It has seen negative earnings estimate revision of two cents for the to-be-reported quarter over the past 60 days. The stock has a VGM Score of C. The company is scheduled to report on Apr 25, before the opening bell.

Alexion Pharmaceuticals, Inc. Price and EPS Surprise

Alexion Pharmaceuticals, Inc. Price and EPS Surprise | Alexion Pharmaceuticals, Inc. Quote

Conclusion

With the criterions for beat holding true for three of the four major companies, investors can expect a strong Q1 earnings season for the biotech sector. In turn, the ETFs with solid exposure to these stocks are expected to maintain momentum. Meanwhile, BBH has a Zacks Rank #1 (Strong Buy) while IBB and FBT have a Zacks Rank #2 (Buy).

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First Trust NYSE Arca Biotechnology Index Fund (FBT): ETF Research Reports
 
VanEck Vectors Biotech ETF (BBH): ETF Research Reports
 
ProShares Ultra Nasdaq Biotechnology (BIB): ETF Research Reports
 
iShares Nasdaq Biotechnology ETF (IBB): ETF Research Reports
 
Gilead Sciences, Inc. (GILD) : Free Stock Analysis Report
 
Alexion Pharmaceuticals, Inc. (ALXN) : Free Stock Analysis Report
 
Amgen Inc. (AMGN) : Free Stock Analysis Report
 
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