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Will Healthcare ETFs Lose Momentum as Q1 Earnings Unfold?

The healthcare sector has gained momentum lately on investors’ rush to safety in a volatile stock market. The sector is non-cyclical in nature, which, in turn, provides a cushion to the portfolio. Additionally, escalating geopolitical tension and an uncertain Fed have raised the appeal for defensive bets.

As such, ultra-popular ETFs, Health Care Select Sector SPDR Fund XLV, Vanguard Health Care ETF VHT, iShares U.S. Healthcare ETF IYH and Fidelity MSCI Health Care Index ETF FHLC are up modestly between 0.1% and 0.3% each over the past three months.

The further price movement of these funds depends on earnings releases from some big names like Pfizer PFE, Merck MRK, Amgen AMGN, AbbVie ABBV, Bristol Myers Squibb BMY and Eli Lilly LLY that dominate returns. These firms are lined up to report their earnings in the next two weeks. All these stocks collectively account for a 30.8% share in XLV, 30.5% in IYH, 27.3% in VHT and 27.3% in FHLC (see: all the Healthcare ETFs here).

Let’s dig deeper into the earnings picture of these companies, which will drive the performance of the abovementioned funds in the coming days.

According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Pfizer has an Earnings ESP of -6.76% and a Zacks Rank #3. The stock witnessed a negative earnings estimate revision of a penny for the to-be-reported quarter over the past 30 days. Pfizer delivered an earnings surprise of 60.54%, on average, in the past four quarters. Pfizer is scheduled to report earnings on May 1, before the opening bell.

Merck is slated to report results on Apr 25, before market open. It has an Earnings ESP of -1.36% and a Zacks Rank #3. The stock witnessed a negative earnings estimate revision of 14 cents over the past 30 days for the to-be-reported quarter. Additionally, Merck delivered a four-quarter beat of 38.17%, on average.

Amgen has an Earnings ESP of -1.55% and carries a Zacks Rank #3. It witnessed a positive earnings estimate revision of 8 cents over the past 30 days for the quarter to be reported. The earnings surprise track over the past four quarters is strong, with the beat being 6.00%, on average. Amgen will report earnings on May 2 (read: 5 Market-Beating Sector ETFs of Q1).

AbbVie has an Earnings ESP of 0.00% and a Zacks Rank #3. It saw a negative earnings estimate revision of seven cents over the past 30 days for the to-be-reported quarter and delivered an earnings surprise of 2.34%, on average, in the last four quarters. The company is scheduled to report on Apr 26 before the opening bell.

Bristol-Myers will report earnings on Apr 25 before the opening bell. It has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimates is pegged at a loss of $4.51 for the to-be-reported quarter, down from earnings of $1.55 per share estimated 30 days ago. The stock delivered an earnings surprise of 4.24%, on average, over the past four quarters.

Eli Lilly is scheduled to release earnings on Apr 30, before market open. It has an Earnings ESP of -0.85% and a Zacks Rank #3. The stock saw a negative earnings estimate revision of seven cents over the past 30 days for the to-be-reported quarter. Eli Lilly delivered an earnings surprise of 56.51%, on average, over the last four quarters.

Summing Up

The healthcare sector is expected to witness a modest earnings decline of 5.6% in the first quarter. However, the sector is expected to benefit from cutting-edge medicines, new drug approvals, technological advancements, and deal activities. In particular, investor enthusiasm in areas like weight-loss treatments will likely bolster the sector. XLV and VHT have a Zacks ETF Rank #1 each, while IYH and FHLC have a Zacks ETF Rank #3.

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Bristol Myers Squibb Company (BMY) : Free Stock Analysis Report

Pfizer Inc. (PFE) : Free Stock Analysis Report

Merck & Co., Inc. (MRK) : Free Stock Analysis Report

Eli Lilly and Company (LLY) : Free Stock Analysis Report

Amgen Inc. (AMGN) : Free Stock Analysis Report

AbbVie Inc. (ABBV) : Free Stock Analysis Report

Health Care Select Sector SPDR ETF (XLV): ETF Research Reports

iShares U.S. Healthcare ETF (IYH): ETF Research Reports

Vanguard Health Care ETF (VHT): ETF Research Reports

Fidelity MSCI Health Care Index ETF (FHLC): ETF Research Reports

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Zacks Investment Research