5 Biotech Stocks Well Poised to Beat Q2 Earnings Estimates

The biotech industry witnessed a turnaround in the last three months after struggling in early 2018. The industry has risen 10.2% in the past three months compared with an increase of 5.6% registered by the broader S&P 500. The industry had declined 5% in the first three months of 2018.

The recovery is aided by investors flocking to the defensive sector as negative macro factors like trade wars and rising oil prices affect other sectors. Moreover, significant cash on the balance sheet of large pharmaceutical companies is fueling mergers and acquisitions in the biotech sector, thus driving returns. Meanwhile, Biogen’s positive results from a phase II Alzheimer's study has further boosted the sector.

New drugs, label expansions of prominent drugs and huge demand led to strong first-quarter performance by drug/biotech companies. The FDA has approved 21 novel drugs so far this year, which is expected to accelerate as the year progresses. Potential positive data readouts from clinical studies scheduled ahead should also push the industry higher.

Some strong fundamentals which attract investors to the biotech sector include growing demand for drugs, especially for rare-to-treat diseases, an elderly population and increased health care spending.

Q2 Earnings So Far

For the 48 S&P 500 companies that have reported so far, earnings and sales have risen 23% and 10%, respectively, from the year-ago period.

The biotech industry that falls within the broader Medical sector (includes drug, biotech as well as Medical Device companies) seems to be on a solid footing. Only 5.5% of the total companies in the industry have reported so far. However, these stocks constitute more than one-fifth of the total market cap of the sector. Per the latest EarningsOutlook, earnings are expected to grow 8% on the back of 6.2% growth in revenues for the medical sector in the second quarter.

How to Pick Likely Q2 Winners

Given the enormity of the healthcare space, selecting stocks that have the potential to beat estimates appears to be quite daunting. But our proprietary methodology makes it fairly simple. One way to narrow down the list of choices this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positiveEarnings ESP. More often than not, a positive earnings surprise delivered by a company leads to stock price appreciation.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of delivering a positive surprise in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Here are five biotech stocks that are poised to beat estimates in the second quarter according to our methodology.

Our first pick is Gilead Sciences, Inc. (GILD). This Foster City, CA based company has an Earnings ESP of +2.62% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for the second quarter is $1.54 per share.  The company has a mixed earnings surprise record, having surpassed earnings expectations in three of the last four quarters. The average negative earnings surprise over the four trailing quarters is4.98%.

Acorda is scheduled to report results on Jul 25.

Our next choice is Keryx Biopharmaceuticals, Inc. (KERX). Carrying a Zacks Rank #2, the stock has an Earnings ESP of +23.25%. The Zacks Consensus Estimate for the second quarter is pegged at a loss of 14 cents per share. Massachusetts-based Keryx has a mixed earnings surprise track record. The company came up with a positive earnings surprise of 5.26% in the previous quarter.

Keryx is expected to announce results on Jul 26.

Intercept Pharmaceuticals, Inc. (ICPT)too has a mixed track record with the company beating earnings expectations in three of the last four quarters, with an average positive surprise of 1.12%. It looks poised to beat expectations in the second quarter as well. This New York-based company carries a Zacks Rank #2 and has an Earnings ESP of +9.35%. The Zacks Consensus Estimate is pegged at a loss of $2.90 cents per share.

Intercept is expected to report results on Jul 30.

Arbutus Biopharma Corporation (ABUS) is another solid bet. This Zacks Rank #2 stock has an Earnings ESP of +10.58%. This Canada-based company delivered an earnings beat in three of the last four quarters.

Arbutus is expected to release results on Aug 2, with the Zacks Consensus Estimate for the second quarter pegged at a loss of 35 cents per share.

Ardsley, NY-basedAcorda Therapeutics, Inc.(ACOR) also makes it to our list of likely outperformers in the second quarter by virtue of its Zacks Rank #2 and an Earnings ESP of +66.76%. The Zacks Consensus Estimate is pegged at 61 cents per share.Acorda is expected to report its results on Jul 26.         

Bottom Line  

Challenges in the form of negative data readouts and regulatory decision remain. Moreover, drug pricing controversy is a headline risk for the industry. President Trump recently attacked Pfizer for hiking prices for several drugs. However, a number of companies in the healthcare space have fared well. Picking some outperformers from the space, backed by a solid Zacks Rank and a positive Earnings ESP, could lead investors to gain this earnings season.

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