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The first-quarter earnings season is nearing its end with 80% of the S&P 500 companies having already reported their results. The results so far reflect all-around strength, with an above average proportion of companies beating both top- and bottom-line expectations. However, the stock market does not reflect this strength. Moreover, there is uncertainty in the market due to rising inflation and geopolitical tensions.
We note that investors had already factored in the majority of the expected gains in this quarter due to steady growth in earnings since second half of 2017.
Rising crude prices can be good news for shale oil producers in the United States, however, it will fuel inflation. Moreover, Fed hikes have diverted cash flows to the bond market, taking away some sheen from the equity markets.
Meanwhile, a trade war between the two largest economies of the world – the United States and China – has impacted global stock markets unfavorably. We remind investors that China levied tariffs on 128 U.S. products after President Donald Trump announced plans to impose tariffs on up to $60 billion of annual Chinese imports. A strong dollar is also likely to impact exports during the year.
Per the latest Earnings Preview, total earnings of the 409 S&P 500 members who have already reported increased 24%, primarily driven by the favorable tax laws passed in December. Revenues increased 9.3% for these companies. However, the revision for second-quarter earnings estimates is underwhelming.
The Biomedical and Genetics sector has underperformed the market so far this year. The sector has decreased 12.3% compared with the S&P 500’s decline of 0.5% during the period. However, per our latest report, total earnings for the broader medical sector are expected to grow 13.6% from the same period last year on 8.3% higher revenues.
The biotech sector may improve as the year advances as we expect new product sales to thrive in tandem with rising demand. Moreover, positive data readouts from clinical studies, lineup of new product launches along with aging population and growing demand for rare-to-treat diseases’ drugs are expected to fuel the sector’s growth.
How to Pick Potential Q1 Winners
There are a number of biotech companies, which are likely to surpass first-quarter estimates. However, given the large number of biotech firms, the task of selecting stocks with possibilities to beat estimates could appear quite daunting.
With the help of the Zacks Stock Screener, we have zeroed in on five biotech stocks that carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and have a positive Earnings ESP. It is a valuable tool for investors looking for stocks that are most likely to beat earnings estimates. 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.
5 Stocks Poised for an Outperformance
Our first pick is CRISPR Therapeutics AG CRSP. This Switzerland-based company has an Earnings ESP of +10.45% and a Zacks Rank #3. The Zacks Consensus Estimate for first-quarter 2018 is pegged at a loss of 67 cents per share. The company has an encouraging earnings track record, with an average beat of 25.12%. CRISPR Therapeutics is expected to report earnings on May 10.
Our next choice is Keryx Biopharmaceuticals, Inc. KERX. The stock has an Earnings ESP of +11.69% and a Zacks Rank #3. The consensus mark for the first quarter stands at a loss of 19 cents per share. Headquartered in Boston, MA, Keryx is slated to announce results on May 10.
Paratek Pharmaceuticals, Inc. PRTK has outpaced expectations in three of the last four quarters with an average beat of 10.49%. It looks perfectly poised to carry on this winning streak. This Boston, MA-based player is Zacks #3 Ranked and has an Earnings ESP of +7.31%. The consensus estimate for the first quarter is pegged at a loss of 94 cents per share. Paratek is scheduled to release financial figures on May 9.
Biotech company, BioDelivery Sciences International, Inc. BDSI has an Earnings ESP of +8.70% and a Zacks Rank of 3. The Zacks Consensus Estimate for the first quarter is pegged at a loss of 23 cents per share. The company has delivered an average beat of 127.29% in the last four quarters. The company is scheduled to report earnings on May 10.
Our last choice is Adverum Biotechnologies, Inc. ADVM. The stock has an Earnings ESP of +6.9% and is a #3 Ranked player. The consensus estimate for the first quarter stands at a loss of 29 cents per share. Based in Menlo Park, CA, Adverum is expected to announce results this month.
You can see the complete list of today’s Zacks #1 Rank stocks here
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BioDelivery Sciences International, Inc. (BDSI) : Free Stock Analysis Report
Keryx Biopharmaceuticals, Inc. (KERX) : Free Stock Analysis Report
Adverum Biotechnologies, Inc. (ADVM) : Free Stock Analysis Report
Paratek Pharmaceuticals, Inc. (PRTK) : Free Stock Analysis Report
CRISPR THERAPTC (CRSP) : Free Stock Analysis Report
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