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What's in the Cards for AstraZeneca (AZN) in Q1 Earnings?

Zacks Equity Research

AstraZeneca PLC AZN is scheduled to report first-quarter 2019 results on Apr 26.

The company’s earnings beat estimates in each of the past four quarters with the average being 106.4%.

Shares of AstraZeneca have increased 2% so far this year against the industry‘s decrease of 3.5%.

 

In the last reported quarter, AstraZeneca reported a positive earnings surprise of 116.44%.

Let’s see how things are shaping up for this announcement.

Factors at Play

AstraZeneca returned to product sales growth in the second half of 2018 on the back of its newer drugs and emerging markets. We expect the positive trend to impact first-quarter 2019 results as well.

New oncology drugs, which include Lynparza, Tagrisso and Imfinzi, have seen strong demand in their indications. Tagrisso’s sales doubled in 2018 boosted by its approval in first-line setting for advanced lung cancer. Imfinzi, which is approved for an early-stage lung cancer, has seen strong uptake since its launch in February 2018. Lynparza, which is marketed in collaboration with Merck MRK, is the first PARP inhibitor to be approved for treating breast cancer. Sales of this drug more than doubled in 2018. We expect these three cancer drugs to drive AstraZeneca’s first-quarter 2019 results.

AstraZeneca’s other major new drugs include Brilinta and Farxiga, which are approved for cardiovascular disease and diabetes, respectively. We expect these blockbuster drugs to contribute significantly to the soon-to-be reported quarter’s results. Farxiga received approval in Europe and Japan in late March. However, these approvals are unlikely to have any significant impact on sales in the first quarter.

Sales of AstraZeneca’s newer medicines rose 81% in 2018 as almost every new product it has launched in recent years did well. This growth supported the company’s top line by offsetting the loss in sales due to loss of exclusivity of older drugs like Crestor, Nexium and Seroquel XR. Generic competition is expected to hurt sales of these drugs in the first quarter.

Among major legacy drugs, only Pulmicort’s sales increased year over year in 2018 on the back of higher sales in the emerging markets. However, we remain uncertain of the performance of Pulmicort this time around as multiple generics are available in the U.S. market. Launch of these generic drugs in emerging markets will hurt sales of this drug.

AstraZeneca’s COPD drug Symbicort’s sales have been declining due to pricing pressure and competition. Moreover, sales of the new COPD drug, Bevespi, stagnated in the last reported quarter due to slower-than-anticipated growth in LAMA/LABA class. However, it remains to be seen if sales show any improvement this quarter. Approval of the drug in Europe in December is likely to aid first-quarter sales.

The Zacks Consensus Estimate for sales and earnings stands at $5.27 billion and 43 cents per share, respectively.

Multiple clinical studies on its approved drugs for label expansion as well as for developing new treatment regimens are expected to increase operating expenses in the first quarter. Moreover, commercial initiatives to support launch and sales of new drugs will also increase operating expenses.

Earnings Whispers

Our proven model shows that the combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: Earnings ESP,  which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at -1.92%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AstraZeneca’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

AstraZeneca PLC Price and EPS Surprise

AstraZeneca PLC Price and EPS Surprise | AstraZeneca PLC Quote

Stocks That Warrant a Look

Here are some biotech stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

Incyte Corporation INCY has an Earnings ESP of +14.47% and a Zacks Rank #1. The company is scheduled to release first-quarter results on Apr 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gilead Sciences, Inc. GILD has an Earnings ESP of +1.37% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 2.

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