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What Lies Ahead for Healthcare ETFs in Q4 Earnings?

Sweta Killa

The healthcare sector made a strong bounce back in the fourth quarter and continued its solid performance to start 2020. Positive news pertaining to trial results, deal activities and better-than-expected earnings fueled optimism in the space.

The ultra-popular ETF, 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 were up at least 14.0% each in the past 13 weeks. The price movement of the fund depends on earnings releases of some big names like Pfizer PFE, Merck MRK, Amgen AMGN, AbbVie ABBV, Gilead Sciences GILD and Bristol-Myers Squibb BMY that dominate their returns (read: 5 ETFs From Top Industries That Won't Let You Down in 2020).

These firms are lined up to report their earnings in the coming weeks. All these stocks collectively account for 24.5% share in XLV, 22.7% in IYH, 21.6% in VHT and 20.9% in FHLC. 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:

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Pfizer has a Zacks Rank #1 and an Earnings ESP of -1.02%, indicating a lower chance of beating estimates this quarter. The stock saw no earnings estimate revision for the to-be-reported quarter over the past 30 days. It delivered positive earnings surprise of 4.63%, on average, in the past four quarters and has a VGM Score of D. Pfizer is scheduled to report earnings on Jan 28, before the opening bell.

Merck is expected to report results on Feb 5 before market open. It has a Zacks Rank #3 and an Earnings ESP of +1.05%, indicating reasonable chances of beating estimates. The stock delivered a positive earnings surprise in the last four quarters, with the average beat being 12.51%. It witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter. Merck has a VGM Score of A (read: Bet on Favorite Sector ETFs & Stocks This Earnings Season).

Amgen carries a Zacks Rank #3 and has an Earnings ESP of -1.55%. The earnings surprise track over the past four quarters is strong, with the positive surprise being 5.82%, on average. Amgen has witnessed negative earnings estimate revision of a penny over the past 30 days for the quarter to be reported. The stock has a VGM Score of B. Amgen will report earnings on Jan 30 after market close.

AbbVie has a Zacks Rank #3 and an Earnings ESP of -1.96%. The company delivered a positive earnings surprise in the last four quarters, with the average beat being 1.71%. However, it saw negative earnings estimate revision of three cents over the past month for the to-be-reported quarter. The stock has a top VGM Score of A. The company is scheduled to report on Feb 7 before the opening bell.    

Gilead is expected to release earnings on Feb 4 after market close. It has a Zacks Rank #2 and an Earnings ESP of +4.45%. Gilead’s negative earnings surprise was 0.66%, on average, over the last four quarters. It saw no earnings estimate revision over the past month for the to-be-reported quarter. Gilead has a VGM Score of B (see: all the Healthcare ETFs here).

Bristol-Myers will likely report earnings on Feb 6 before the opening bell. It has a Zacks Rank #2 and an Earnings ESP of -2.64%. The stock delivered an average positive earnings surprise of 8.30% over the past four quarters, and saw no earnings estimate revision for the to-be-reported quarter in a month. It has a VGM Score of A.

Summing Up

With earnings surprise in the cards, the healthcare sector is expected to witness substantial earnings growth of 4.4% in the fourth quarter, suggesting some room for potential upside for healthcare ETFs. In particular, FHLC has a Zacks ETF Rank #3 while the remaining three have a Zacks ETF Rank #2.

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