Drug/Biotech Stocks Q4 Earnings Due On Jan 31: LLY & VRTX

The fourth-quarter 2017 earnings season is in full swing with financial figures from 133 S&P 500 members or 26% of the index already out as of Jan 26, 2018 per the latest Earnings Preview.

Total earnings for these index members jumped 12.3% from the year-ago quarter, driven by 8.8% improvement in revenues. The beat ratio was 81.2% for the bottom line and 78.9% for the top line.

On a positive note, the ongoing earnings phase seems to have begun well for the Drug/Biotech sector. Among major large cap players, Johnson & Johnson (NYSE:JNJ) kicked off the season with earnings beating estimates while sales slightly missing the same. A few other large pharma companies released their earnings results last week and the picture looks quite encouraging.

The pharma bigwigs having reported last week are Novartis (NYSE:NVS) and AbbVie (NYSE:ABBV) , which surpassed both earnings and sales estimates in the quarter under review. While Novartis raised its sales guidance for 2018, AbbVie increased its previously issued earnings expectations for the year.

Of the major players in the biotech sector, Biogen (NASDAQ:BIIB) announced a mixed performance in the reported period with earnings lagging estimates while sales exceeding the same. However, Celgene Corp. (NASDAQ:CELG) outpaced both the metrics’ expectations during the fourth quarter.

Drug/biotech stocks remained on a growth trajectory in 2017, courtesy of a slew of FDA approvals, rise in demand for new product sales, successful innovation and product line expansion, strong clinical reports as well as a continued robust performance of legacy products. Moreover, these impressive factors, along with regular acquisitions, are expected to drive the sector’s growth in 2018 as well.

Also, per the Earnings Preview, the broader Medical sector (inclusive of drug, biotech as well as Medical Device companies) is likely to record 4.9% year-over-year growth in revenues and a 4.2% rise in earnings in the period under discussion.
Two pharma/biotech giants are scheduled to report earnings numbers on Jan 31. Let's see how things are shaping up for the companies in the upcoming releases.

Eli Lilly and Company (NYSE:LLY)

Lilly is scheduled to release fourth-quarter earnings before the market opens. The company delivered a positive surprise of 1.94% last quarter. Lilly’s earnings performance has been modest with earnings missing expectations in three of the last four quarters while beating the same in the remaining one, thus bringing the average beat to 1.68%.

Our proven model shows that Lilly is likely to beat on earnings this quarter. The combination of Lilly’s Zacks Rank #3, which increases the predictive power of ESP as a solid Zacks Rank, and a positive Earnings ESP of +0.47% makes us confident about an earnings beat in the impending report. The Zacks Consensus Estimate for the quarter to be reported is pegged at $1.08 per share.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We expect a sturdy uptake of new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo. This upside is likely to make up for the decline in sales of established products like Zyprexa, Alimta, Cialis, Strattera and Effient in the fourth quarter. (Read More: Lilly to Report Q4 Earnings: What's in the Cards?).

Vertex Pharmaceuticals, Inc. (NASDAQ:VRTX)

Vertex is slated to release fourth-quarter earnings after the market closes. The company’s track record has also been impressive so far. It delivered a positive surprise in each of the trailing four quarters with an average beat of 32.67%. In third-quarter 2017, Vertex came up with a positive surprise of 43.24%.

However, our proven model does not conclusively show that Vertex is likely to beat on earnings this quarter. Though the company’s favorable Zacks Rank #3 (Hold) increases the predictive power of ESP, its Earnings ESP of -4.00% leaves surprise prediction inconclusive. The Zacks Consensus Estimate is pegged at 58 cents per share. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vertex’s cystic fibrosis (CF) drugs, Kalydeco & Orkambi, performed consistently in the first three quarters of 2017. We expect this uptrend to be reflected in the results of the soon-to-be reported quarter. (Read More: Vertex to Report Q4 Earnings: What's in the Cards?).

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