Market Overview

Pharma ETFs Down Post Q3 Earnings

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Total earnings for 95.3% of the total healthcare market capitalization are up 7.6% on revenue growth of 4.6%. Though earnings growth appears solid compared with many other sectors, earnings and revenue beat ratios of 72.5% and 58.8%, respectively, look disappointing.

Among the most notable players, Johnson & Johnson JNJ was the first major drug company to report earnings on Oct 17, followed by Eli Lilly and Company LLY and Bristol-Myers Squibb Company BMY on Oct 24 and Oct 26, respectively. Two other major U.S. drug companies, Merck MRK and Pfizer PFE, reported on Oct 27 and Oct 31, respectively. These industry primes posted solid results with either earnings or revenue beats or both.

Johnson and Johnson Earnings in Focus

The world's biggest maker of healthcare products continued its long streak of earnings beat. Earnings per share came in at $1.90, 10 cents ahead of the Zacks Consensus Estimate and 13.1% higher than the year-ago quarter. Revenues grew 10.3% year over year to $19.65 billion and edged past the Zacks Consensus Estimate of $19.28 billion. Johnson & Johnson raised its full-year earnings per share guidance to $7.25-$7.30 from $7.12-$7.22 and revenue guidance to $76.1-$76.5 billion from $75.8-$76.1 billion (read: Healthcare ETFs in Focus on Johnson & Johnson Q3 Earnings).

Pfizer Earnings in Focus

The U.S. drug giant came up with an earnings beat and in-line revenues. Earnings per share of 67 cents came in a couple of cents above the Zacks Consensus Estimate while revenues of $13.7 billion were in line with the estimate of $13.17 billion. On a year-over-year basis, earnings per share and revenues rose 10% and 1%, respectively. For 2017, Pfizer narrowed the revenue guidance range to $52.4-$53.1 billion from $52-$54 billion while raised the earnings per share guidance range to $2.58-$2.62 from $2.54-$2.60.

Merck Earnings in Focus

Merck beat the earnings estimate while missed on revenues. Earnings per share came in at $1.11, surpassing the Zacks Consensus Estimate of $1.03 and improving 3.7% from the year-ago quarter. Revenues declined 2% year over year to $10.33 billion and were below the Zacks Consensus Estimate of $10.51 billion. Merck raised its revenue guidance to $40-$40.5 billion from $39.4-$40.4 billion and earnings per share guidance to $3.91-$3.97 from $3.76-$3.88 for this year.

Bristol-Myers Earnings in Focus

Bristol-Myers missed on earnings while beats on revenues. It reported earnings per share of 75 cents, a couple of cents below the estimate. Revenues grew 7.1% to $5.25 billion and edged past the Zacks Consensus Estimate of $5.19 billion. The company raised its earnings per share guidance to $2.95-$3.05 from $2.90-$3.00 (see: all the Healthcare ETFs here).

Eli Lilly Earnings in Focus

Eli Lilly topped the Zacks Consensus Estimate on both fronts. Earnings of $1.05 outpaced the Zacks Consensus Estimate by couple of cents and came in 19% higher than the year-ago quarter. Revenues grew 9% to $5.66 billion and beat the $5.52-billion estimate. Like other drug makers, Eli Lilly also raised its 2017 revenue and earnings guidance. It now expects revenues in the range of $22.4-$22.7 billion compared with the previous expectation of $22.0-$22.5 billion and earnings per share in the range of $4.15-$4.25 versus $4.10-$4.20 expected previously.

ETF Angle

The string of earnings beat failed to boost pharma ETFs as they saw rough trading over the past one month. Below, we have highlighted these in detail. These funds have a Zacks ETF Rank #3 (Hold) with a High risk outlook:

PowerShares Dynamic Pharmaceuticals Fund PJP

This is by far the most popular choice in the pharma space that follows the Dynamic Pharmaceuticals Intellidex Index. The product has AUM of about $663.7 million and sees a lower volume of around 52,000 shares a day. The fund charges 56 bps in fees and expenses. Holding 30 stocks, the fund invests around 22.8% share in the in-focus five firms. The ETF has lost 6% in a month.

iShares U.S. Pharmaceuticals ETF IHE

This ETF provides exposure to 42 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus firms are the top five holdings in the basket accounting for a combined 40.3% of total assets, suggesting heavy concentration. The product has $594.5 million in AUM and charges 44 bps in fees and expense. Volume is light as it exchanges about 19,000 shares a day. The fund has shed 6% in a month (read: What Lies in Store for Pharma ETFs?).

SPDR S&P Pharmaceuticals ETF XPH

This fund provides exposure to the pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $396.6 million, it trades in a good volume of around 90,000 shares a day and charges 35 bps in fees a year. In total, the product holds 39 securities with the in-focus five firms taking nearly 5% share each. The product was down 7% in the same period.

VanEck Vectors Pharmaceutical ETF PPH

This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 26 stocks in its basket. Johnson & Johnson, Pfizer, Bristol-Myers, and Eli Lilly accounts for at least 5% share each while Merck makes up for 4.4% of assets. The product has amassed $262.4 million in its asset base and trades in a moderate volume of about 67,000 shares a day. Expense ratio comes in at 0.35%. The fund has lost 5.9% in a month.

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Bristol-Myers Squibb Company (NYSE: BMY): Free Stock Analysis Report
Pfizer, Inc. (NYSE: PFE): Free Stock Analysis Report
Eli Lilly and Company (NYSE: LLY): Free Stock Analysis Report
Johnson & Johnson (NYSE: JNJ): Free Stock Analysis Report
Merck & Company, Inc. (NYSE: MRK): Free Stock Analysis Report
SPDR-SP PHARMA (ETF:XPH): ETF Research Reports
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