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Pharma ETFs Set to Benefit Post Strong Q3 Earnings

Sweta Killa

Total earnings of the 79.7% of the entire healthcare market capitalization that has reported so far are up 7.1% on revenue growth of 8.2%. The earnings and revenue growth rates seem to be the fourth highest among all the sectors. Earnings and revenue beat ratios of 80.6% and 86.1%, respectively also appear strong.

Most industry bigwigs delivered encouraging results, either beating on earnings or revenues or both and also raised revenue or earnings guidance or both. Let’s delve into a few of them:

Earnings in Focus

Johnson and Johnson


The world's biggest healthcare products maker continued its long streak of earnings beat. It also outpaced revenue estimates. Earnings per share came in at $2.12, 12 cents ahead of the Zacks Consensus Estimate and 3.4% higher than the year-ago quarter. Revenues grew 1.9% year over year to $20.7 billion and edged past the Zacks Consensus Estimate of $20.1 billion. For 2019, Johnson & Johnson raised its sales forecast to $81.8-$82.3 billion from $80.8-$81.6 billion, which represents 0.2%-0.7% year-over-year growth, on robust demand for its cancer drugs. It also upped its earnings per share guidance to $8.62-$8.67 from $8.53-$8.63, representing year-over-year growth of 5.4-6% (read: JNJ Beats, Ups View: Healthcare ETFs to Buy).

Pfizer

Earnings per share of 75 cents were 12 cents above the Zacks Consensus Estimate and revenues of $12.68 billion also edged past the consensus mark of $12.15 billion. On a year-over-year basis, earnings per share and revenues declined 2% and 5%, respectively. For 2019, the U.S. drug giant revised sales guidance to $51.2-$52.2 billion from $50.5-$52.5 billion and earnings per share to $2.94-$3.00 from $2.76-$2.86.

Merck

Earnings per share of $1.51 surpassed the Zacks Consensus Estimate of $1.25 and also improved 27% from the year-ago quarter. Moreover, revenues grew 15% year over year to $12.4 billion, edging past the consensus mark of $11.7 billion. Merck increased its revenue projection from $45.2-$46.2 billion to $46.5-$47 billion for this year and earnings per share view from $4.84-$4.94 to $5.12-$5.17 (read: Value Biotech ETFs & Stocks to Buy Now).

Bristol-Myers

Bristol-Myers’s earnings per share of $1.17 beat the Zacks Consensus Estimate by 11 cents and also rose from the year-ago figure of $1.09. Revenues grew 6% year over year to $6 billion and also trumped the Zacks Consensus Estimate of $5.8 billion. The company lifted its earnings per share guidance to $4.25-$4.35 from $4.20-$4.30.

Eli Lilly

Eli Lilly delivered better-than-expected earnings but lagged on revenues. Earnings of $1.48 per share were 5 cents ahead of the Zacks Consensus Estimate and came in 10% higher than the year-earlier quarter. Revenues grew 3% to $5.48 billion but fell short of the estimated $5.56 billion. While Eli Lilly maintained its 2019 revenue guidance of $22-$22.5 billion, it raised its earnings prediction to $5.75-$5.85 from $5.67-$5.77.

ETF Angle

Robust results led to solid trading in pharma ETFs in a month. Below, we have highlighted those in detail (see: all the Healthcare ETFs here).

iShares U.S. Pharmaceuticals ETF IHE

This ETF provides exposure to 45 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus firms are the top 10 holdings in the basket, accounting for 56.8% of the total assets, suggesting heavy concentration. The product has $334.9 million in AUM and charges 42 bps in fees and expense. Volume is light as it exchanges about 17,000 shares a day. The fund has added 4.3% in a month and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

First Trust Nasdaq Pharmaceuticals ETF FTXH

This fund tracks the Nasdaq US Smart Pharmaceuticals Index, holding 30 securities in its basket. The in-focus firms account for a combined 32% of the assets. FTXH has a lower level of $8.5 million in AUM and 2,000 shares in average daily volume. It charges 60 bps in annual fees and is up 5.1% in the same time frame. The product has a Zacks ETF Rank #3.

SPDR S&P Pharmaceuticals ETF XPH

This fund provides exposure to pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $187.2 million, it trades in good volume of around 71,000 shares a day and charges 35 bps in fees a year. In total, the product holds 39 securities with the in-focus five firms making up for at least 4% share each. The product has gained 12.2% in the same period and has a Zacks ETF Rank #3 with a High risk outlook (read: Healthcare ETFs Win in October: Here's Why).

VanEck Vectors Pharmaceutical ETF PPH

This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 25 stocks in its basket. The in-focus five firms account for a nearly 5% share each. The product has amassed $179.1 million in its asset base and trades in moderate volume of about 46,000 shares a day. Expense ratio is 0.36%. The fund has gained 7.5% of value in a month and has a Zacks ETF Rank #3 with a Medium risk outlook.

Invesco Dynamic Pharmaceuticals ETF PJP

This is by far the most-popular choice in the pharma space that follows the Dynamic Pharmaceuticals Intellidex Index. The product has AUM of about $362.3 million and sees a lower volume of around 40,000 shares a day. The fund charges 56 bps in fees and expenses. Holding 30 stocks, the fund invests nearly 5% share each in the five firms. The ETF has gained 8% in a month and has Zacks ETF Rank #3 with a High risk outlook.

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