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Healthcare ETFs to Watch As Q4 Earnings Unfold

Sweta Killa
FedEx (FDX) just released its fourth-quarter fiscal 2018 financial results, posting adjusted earnings of $5.91 per share and revenues of $17.3 billion.

Healthcare is performing well with the start of the New Year thanks to encouraging industry trends and a favorable policy environment. Notably, popular ETFs like Health Care Select Sector SPDR Fund XLV, Vanguard Health Care ETF VHT, iShares U.S. Healthcare ETF IYH and Fidelity MSCI Health Care Index ETF FHLC have gained nearly 7% so far.

The bullish trend is likely to continue heading into the Q4 earnings season as some big names like Johnson and Johnson JNJ, Pfizer PFE, Merck MRK, Amgen AMGN, AbbVie ABBV, Gilead Sciences GILD and Bristol-Myers Squibb BMY are lined up to report this week and in the next. All these stocks collectively account for 38.4% share in XLV, 36.9% in IYH, 33.2% in VHT and 33.2% in FHLC (read: Tax Bill: What ETF Investors Need to Know).

Let’s dig deeper into the earnings picture of these companies that would drive the performance of the above-mentioned funds in the coming days:

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

Inside Our Surprise Prediction of These Stocks

JNJ has a Zacks Rank #3 and an Earnings ESP of -0.09%, indicating a lower chance of beating estimates this quarter. The stock has seen no earnings estimate revision for the yet-to-be-reported quarter but delivered an average negative earnings surprise of 3.12% for the past four quarters. It has an impressive Momentum Style Score of B and a Value and Growth Style Score of C each. Johnson and Johnson is slated to release its earnings on Jan 23 before the opening bell (see: all the Healthcare ETFs here).

Pfizer has a Zacks Rank #3 and an Earnings ESP of +0.67%, indicating a reasonable chance of beating estimates this quarter. The stock has seen positive earnings estimate revision of a penny for to-be-reported quarter but delivered an average negative earnings surprise of 0.79% for the past four quarters. It has an impressive Growth, Value and Momentum Style Score of B, A and A, respectively. Pfizer is scheduled to report earnings on Jan 30 before the opening bell.

Merck is expected to report results on Feb 2 before the market opens. It has a Zacks Rank #3 and an Earnings ESP of +1.06%. The stock delivered a positive earnings surprise in the last four quarters, with an average beat of 7.76% but witnessed a negative earnings estimate revision of couple of cents over the past 90 days for the to-be-reported quarter. Merck has a Value, Growth and Momentum Style Score of C, F and D, respectively.

Amgen carries a Zacks Rank #3 and has an Earnings ESP of -0.41%, indicating less chances of beating estimates this quarter. Though the earnings surprise track over the past four quarters is robust with an average positive surprise of 5.25%, Amgen witnessed negative earnings estimate revision of four cents over the past 90 days for the quarter to be reported. The stock has a solid Value Style Score of B but the Growth and Momentum Style Score of D each looks dull. Amgen will report earnings on Feb 1 after market close (read: M&A Waves Pushing Biotech ETFs Higher).

AbbVie has a Zacks Rank #3 and an Earnings ESP of +1.30%. The company delivered a positive earnings surprise in the last four quarters, with an average beat of 1.12% and saw no earnings estimate revision over the past three months for the to-be-reported quarter. The stock has a solid Value and Growth Style Score of B each but a Momentum Style Score of D is unimpressive. The company is scheduled to report on Jan 26 before the opening bell.    

Gilead is expected to release earnings on Feb 6 after market close. It has a Zacks Rank #4 and an Earnings ESP of +1.37%. Gilead delivered positive earnings surprises of 9.07% over the last four quarters and saw negative earnings estimate revision of 28 cents over the past three months for the to-be-reported quarter. Though it has a solid Value Style Score of A, a Growth and Momentum Style Score of F each looks ugly.

Bristol-Myers will likely report earnings on Feb 5 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of -1.64%. The stock delivered average positive earnings surprises of 2.72% over the past four quarter, and witnessed positive earnings estimate revision of three cents for the to-be-reported quarter. It has a solid Momentum and Growth Style Score of A and B, respectively, but an unfavorable Value Style Score of C.

Summing Up

With earnings surprises well in the cards, the healthcare sector is expected to witness earnings growth of 3% in the fourth quarter, suggesting some upside for healthcare ETFs. In particular, all the four ETFs have a Zacks ETF Rank #3.

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