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Biotech ETF Recovery Powered By Big Earnings Improvements

Friday, February 10, 2017 9:17
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(Before It's News)

From Zacks: The biotech industry, which was shunned by investors last year, made a strong comeback following Trump’s victory in anticipation of softer regulation.

Though Trump spooked the industry by saying that drugmakers are “getting away with murder” and pledging to initiate a bidding process for drug pricing last month, losses reversed following his latest statements regarding drug prices and regulation. Trump promised to reduce regulations and streamline the approval process (read: Trump Attacks Biotech & Pharma: ETFs Bleed).

Additionally, better-than-expected results from some of the leading players in the industry like Amgen (AMGNFree Report) , Vertex Pharmaceuticals Incorporated (VRTXFree Report) and Illumina (ILMNFree Report) supported the rally. Celgene (CELGFree Report) also contributed to the gains in the sector despite weak results.

Though Gilead Sciences (GILDFree Report) outpaced our estimates on both fronts, its outlook took toll on its shares. Biogen Idec (BIIBFree Report) reported mixed results, beating our estimates on earnings while missing on revenues.

Let’s delve into their earnings picture in detail below:

Biotech Earnings Pushing Stocks Higher

The world’s largest biotech firm, Amgen, propelled the biggest rally in the sector as its shares gained about 5% since its earnings release on February 2. The company reported earnings per share of $2.89, beating the Zacks Consensus Estimate of $2.77 and increasing 11% from the year-ago quarter. Revenues rose 8% to $5.97 billion, surpassing our estimate of $5.74 billion. For 2017, the company expects revenues and earnings per share in the range of $22.3–$23.1 billion and $11.80–$12.60, respectively. The Zacks Consensus Estimate at the time of earnings release was pegged at $23.41 billion for revenues and $12.27 for earnings. Both projections are much below our estimates.

Vertex rose 4.8% following its earnings announcement on January 25. The company surpassed our estimates on both the top and the bottom lines. Earnings per share came in at 13 cents against the Zacks Consensus Estimate of loss of 1 cent per share and a breakeven in the year-ago quarter. Revenues grew 9.8% year over year to $459 million, ahead of our estimate of $449 million (see: all the Healthcare ETFs here).

Though Celgene lagged our estimates on both earnings and revenues, its shares rose 4.7% since its earnings announcement on January 26. Earnings per share came in at $1.41, a couple of cents below the Zacks Consensus Estimate and revenues of $2.98 billion fell shy by $0.29 billion. On a year-over-year basis, both revenues and earnings per share soared 16.3% and 38.2%, respectively. For 2017, Celgene expects revenues to grow 18% year over year to $13–$13.4 billion and earnings per share to rise 21% to $7.10–$7.25. The current Zacks Consensus Estimate is pegged at $13.24 billion for revenues and $6.60 for earnings per share.

Illumina’s earnings of 85 cents per share outpaced our estimates by four cents and revenue of $619 million edged past our estimate by $4 million. Both revenues and earnings grew 4.6% and 4.9%, respectively, from the year-ago quarter. For 2017, the company expects revenues to grow 10–12% and earnings per share of $3.60–$3.70, the mid-point of which is lower that the Zacks Consensus Estimate of $3.67 at the time of earnings release. The stock gained about 2% since the earnings announcement on January 31.

The Dampeners

Gilead Sciences also topped on both fronts. Earnings per share of $2.64 and revenues of $7.32 billion easily beat our estimates of $2.31 and $7.16 billion, respectively. On a year-over-year basis, revenues climbed 13.9% while earnings per share dropped 19.3%. However, revenue guidance of $22.5–$24.5 billion for 2017 was a huge disappointment and came in below our estimate of $26.07 billion. This pushed GILD shares down to a new 52-week low of $65.38. The stock lost about 9.4% of its value over the past three days post earnings release on February 7 (read: What Lies Ahead for Biotech ETFs in Trump Era?).

Biogen reported earnings per share of $5.04, seven cents ahead of the Zacks Consensus Estimate and 12% higher than the year-ago earnings. Revenues inched up 1% year over year to $2.87 billion and were below the Zacks Consensus Estimate of $2.95 billion. The company provided the 2017 outlook with revenues in the range of $11.1–$11.4 billion and earnings per share of $20.45–$21.25. The Zacks Consensus Estimate at the time of earnings release was pegged at $12.02 billion for revenues and $21.12 for earnings. Both projections are much below our estimates. The stock is down about 1% since the earnings announcement on January 26.

ETFs in Focus

Improved earnings are driving the biotech space and ETFs higher over the past 10 days. Investors could closely monitor the movement in the products and could tap the potential surge through ETFs. Below we have highlighted three biotech ETFs that have larger allocation to the above-mentioned stocks and could be solid picks for investors. These funds have a solid Zacks ETF Rank of 1 (Strong Buy) or 2 (Buy) with a High risk outlook.

iShares Nasdaq Biotechnology ETF (IBBFree Report)

This fund provides exposure to 164 firms by tracking the Nasdaq Biotechnology Index and charging 47 bps in annual fees. With AUM of nearly $8.1 billion and average daily volume of about 1.6 million shares, this is the largest and the most popular ETF in the biotech space. The in-focus six firms account for a combined 38.8% share. The product added 4.8% over the past 10 days and has a Zacks ETF Rank of 2.

VanEck Vectors Biotech ETF (BBHFree Report)

This fund offers exposure to 26 large biotechnology corporations by tracking the MVIS US Listed Biotech 25 Index. Here, the in-focus firms make up for half of the portfolio. The fund has amassed $660.7 million in its asset base and charges 35 bps in fees per year. Volume is moderate as it exchanges 80,000 shares in hand on average. It has gained 5.2% in the same timeframe and has a Zacks ETF Rank of 1 (read: Trump Effect Elevated These Sector ETFs to Rank #1).

First Trust NYSE Arca Biotechnology Index Fund (FBTFree Report)

This fund follows the NYSE Arca Biotechnology Index and holds about 30 securities in its basket. The in-focus firms hold around 3% share each. The fund has accumulated $804.3 million in its asset base and trades in a good volume of more than 84,000 shares a day. It charges investors 55 bps in fees per year and gained 6.2% over the past 10 days. FBT has a Zacks ETF Rank of 2.

The iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB) was trading at $283.55 per share on Friday morning, down $1.01 (-0.35%). Year-to-date, IBB has gained 6.85%, versus a 3.36% rise in the benchmark S&P 500 index during the same period.

IBB currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #2 of 36 ETFs in the Health & Biotech ETFs category.


This article is brought to you courtesy of Zacks Research.

You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)



Source: http://etfdailynews.com/2017/02/10/biotech-etf-recovery-powered-by-big-earnings-improvements/

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