Raising the Curtain on Health-Care Earnings
What to expect this month from the volatile sector.
Now that the government's plan to overhaul the health-care system seems to be heading toward a positive outcome for everyone but the consumer, companies can concentrate on what's really important -- their actual business.
Miller Tabak analyst Les Funtleyder says the important thing to watch right now is top-line growth in the health-care sector as many companies are still cutting costs, and that the trimming down of expenses will inflate EPS. He also says to keep a keen eye on what's in the pipeline in the medtech, pharma, and biotech sectors because these companies in particular have been rebuilding over the last year and that seriously impacts future growth.
There are about 30 companies from the health-care space reporting in the last two weeks in January. The time will be dominated by medical device makers, with only a sprinkling of biotech and Big Pharma in the mix (The bulk of large-cap pharmas will be reporting in February).
Covidien (COV) and Intuitive Surgical (ISRG) kick things off for the medtech space this week. Leerink Swann analyst Rick Wise says, "This week's earnings from Covidien should provide some incremental insight into a procedure volume turnaround post-last week's preannouncements [by St. Jude Medical (STJ), Stryker (SYK), and Volcano (VOLC)]. And with Intuitive Surgical scheduled to report earnings on Thursday, Jan. 21, investors should also gain a better sense of the extent of potentially improving hospital budgets and how this might continue to positively impact capital equipment companies through 2010."
Covidien manufactures a swath of bariatric surgical instruments that are expected to see a growing market as obesity-related health problems continue to plague Americans. Leerink's Wise wrote in a recent note that the company can expect to see seasonally strong volumes in most of its products, but that its pain medications business could be weak because of increased generic competition. Wise recommends keeping an eye on medical device pricing and keys trends that the company highlights. Also, listen closely to Covidien's outlook on growth in its specialty pharmaceutical business. The Street expects earnings of $0.73 per share on revenues of $2.6 billion for the fourth quarter.
(See, Biotech's Race to Battle the Bulge)
Meanwhile, Eli Lilly (LLY) and Bristol-Myers Squibb (BMY) are two of the only Big Pharmas reporting this month, with those results expected on January 28. (Johnson & Johnson (JNJ) and Novartis (NVS) will be reporting on January 26.) Lilly, in particular, is a pharma to watch over the next few years as it has one of the biggest exposures to the patent cliff.
MorningStar analyst Damien Conover expects the company's current quarter to be strong as Lilly reaps the final benefits of blockbusters like the antipsychotic Zyprexa, the antidepressant Cymbalta, and the osteoporosis drug Evista. Yet, this could be one of Lilly's last good years until its pipeline matures. According to Thomson Reuters, the Street expects Lilly to pull in revenues of $5.6 billion with earnings per share of $0.91 for the fourth quarter.
In the biotech sector, investors will be keeping a close eye on Gilead Sciences (GILD), which reports on January 26. Robert W. Baird analyst Tom Russo says the company's HIV/AIDS franchise, particularly Quad and Truvada/TMC278, will be critical to the company's future, but that news flow so far on their status has been positive. Gilead has been chastised for its lackluster attempts to diversify away from its core AIDS franchise. The company has seen little return on investment from some very pricey acquisitions and hasn't been able to prove to investors that it knows how to make good investments.
Analysts, on average, expect earnings per share of $0.81 on revenues of $1.9 billion for the fourth quarter, with the HIV franchise accounting for $1.4 billion of that.
(See, Gilead Sciences and Its Acquired Problems)
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