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The Zacks Analyst Blog Highlights: AbbVie, Merck & Co. and AstraZeneca

RLI Corp. (RLI) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

For Immediate Release

Chicago, IL – January 24, 2018 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include AbbVie Inc. ABBV, Merck & Co., Inc. MRK and AstraZeneca plc AZN.

Here are highlights from Tuesday’s Analyst Blog:

3 Large-Cap Pharma Stocks to Beat Earnings This Quarter

The fourth-quarter earnings season is in full swing and the trend so far appears impressive. Notably, 53 S&P 500 companies have posted results (as of Jan 19, 2018) with earnings up 11.7% on revenue growth of 7.5%, per the latest Earnings Preview. Also, 62.3% of these companies topped on earnings and revenues.

Focusing our attention on the Large Cap Pharma sector, we are yet to witness the main show from this space with only one company having reported quarterly results till now/so far. The Large Cap Pharma sub-industry carries a Zacks Industry Rank of #112, placing it among the first 42% of the 265 plus Zacks industries. Our back testing shows that the top 50% of the Zacks ranked industries outperforms the bottom half by a factor of more than two to one.

We remind investors that the drug stocks had a prolific run in 2017, courtesy of a slew of FDA approvals. The regulatory body approved 46 novel drugs last year, easily surpassing 2016’s total tally of 22. Particularly, large-cap players in the industry raked in stellar returns, up 23.9% in the last 12 months.

Upbeat quarterly results, rise in demand for new product sales, successful innovation and product line expansion, strong clinical study results as well as a continued strong performance of legacy products propelled the large-cap drug sector to scale new highs in 2017. Moreover, these tailwinds are expected to drive the sector’s growth in 2018.

Meanwhile, jubilant Republicans passed the tax overhaul bill for the first time in 30 years. The tax bill was signed into law by U.S. President Donald Trump only last month on Dec 22.

The corporate tax rate having been slashed from 35% to 21% can now boost profits of large drug/biotech companies. Meanwhile, the change in tax code will also allow companies to bring back the huge cash stashed overseas at a one-time tax rate of 10%. Also, the tax cuts are expected to prevent the earlier inversions rampant in the drug industry.

Importantly, the outlook for the upcoming fourth-quarter results looks bright. Per the Earnings Preview, the broader Medical sector (inclusive of drug, biotech as well as Medical Device companies) is expected to record 4.6% year-over-year growth in revenues and a 3% rise in earnings this time around.

How to Pick Likely Q4 Winners

Given the enormity of the healthcare space, the task of selecting stocks with potential to beat estimates could appear quite daunting. But our proprietary methodology makes this job fairly simple. One way to taper the list of choices this earnings season is by looking at the stocks with the combination of a favorable Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP. More often than not, a positive earnings surprise delivered by a company leads to its stock price appreciation.

Per our well-researched quantitative model, the Earnings ESP is used for identifying stocks with higher or 70% chances of delivering a positive surprise in the upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Investing in stocks with large market cap is a much more reliable investment as the same controls a large portion of the respective industry. Also, companies with a larger market cap have evidently performed well throughout 2017.

Here are three large-cap pharma stocks poised to surpass estimates in the fourth quarter according to our methodology.

Our first pick is AbbVie Inc. This North Chicago, IL-based company has an Earnings ESP of +1.30% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here. The stock has seen the Zacks Consensus Estimate for fourth-quarter 2017 earnings being pegged at $1.44 per share. The company boasts a positive earnings surprise record, having exceeded expectations in three of the last four quarters with an average beat of 1.12%. AbbVie is scheduled to report results on Jan 26.

Our next choice is Merck & Co., Inc. The stock has an Earnings ESP of +1.06% and a Zacks Rank of 3. The consensus mark for its fourth-quarter earnings stands at 94 cents per share. Based in Kenilworth, NJ, Merck has an encouraging positive earnings surprise history. The company’s average beat over the trailing four quarters is 7.76%. Merck is slated to announce results on Feb 2.

AstraZeneca plc too has a pleasing earnings profile with the company having consistently outpaced earnings expectations in all the last four quarters with an average beat of 126.62%. It looks perfectly poised to repeat this winning streak in the fourth quarter as well. This London, UK-based company is a Zacks #3 Ranked player and has an Earnings ESP of +8.05%. The Zacks Consensus Estimate is pegged at 44 cents per share. AstraZeneca is scheduled to release earnings performance on Feb 2.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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