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What's in Store for Healthcare ETFs in Q3 Earnings?

Sweta Killa

The healthcare space stood tall well over the past three months amid rounds of broad market sell-off. This is primarily thanks to the dual tailwinds of encouraging industry fundamentals, including M&A, and the sector’s defensive tilt.

The ultra-popular ETF, Health Care Select Sector SPDR Fund XLV, gained 0.4% while other popular ETFs like Vanguard Health Care ETF VHT, iShares U.S. Healthcare ETF IYH and Fidelity MSCI Health Care Index ETF FHLC were down 0.6%, 0.2% and 0.5%, respectively. The price movement of the fund depends on the 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.

These firms are lined up to report their earnings this week and in the next. All these stocks collectively account for 23.7% share in XLV, 21.9% in IYH, 20.5% in FHLC and 20.1% in VHT. 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 (read: JNJ Beats, Ups View: Healthcare ETFs to Buy):

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 #3 and an Earnings ESP of -0.79%, indicating a lower chance of beating estimates this quarter. The stock saw no earnings estimate revision for to-be-reported quarter over the past 30 days. It delivered an average positive earnings surprise of 4.63% for the past four quarters and has a VGM Score of B. Pfizer is scheduled to report earnings on Oct 29, before the opening bell.

Merck is expected to report results on Oct 29 before market open. It has a Zacks Rank #3 and an Earnings ESP of +0.16%, indicating reasonable chances of beating estimates. The stock delivered a positive earnings surprise in the last four quarters, with the average beat being 7.96%. It witnessed no earnings estimate revision over the past 30 days for the to-be-reported quarter. Merck has a VGM Score of A.

Amgen carries a Zacks Rank #3 and has an Earnings ESP of +0.50%. The earnings surprise track over the past four quarters is strong, with the average positive surprise being 6.72%. Amgen has witnessed positive earnings estimate revision of three cents over the past 30 days for the quarter to be reported. The stock has a VGM Score of B. Amgen will report earnings on Oct 29 after market close.

AbbVie has a Zacks Rank #3 and an Earnings ESP of -2.62%. The company delivered a positive earnings surprise in the last four quarters, with the average beat being 2.89%. It saw positive earnings estimate revision by a couple of 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 Nov 1 before the opening bell (see: all the Healthcare ETFs here).    

Gilead is expected to release earnings on Oct 24 after market close. It has a Zacks Rank #3 and an Earnings ESP of +0.91%. Gilead delivered average positive earnings surprise of 2.20% over the last four quarters and saw no earnings estimate revision over the past month for the to-be-reported quarter. It has a VGM Score of A.

Bristol-Myers will likely report earnings on Oct 31 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of +0.38%. The stock delivered an average positive earnings surprise of 10.65% 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 B.

Summing Up

With earnings surprise in the cards, the healthcare sector is expected to witness modest earnings growth of 0.3% in the third 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 (read: 4 Sector ETFs & Stocks to Bet on Ahead of Q3 Earnings).

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