Earnings season is in full swing. So far, as usual, there have been winners — and losers. Tech continues to gain, with significant beats from Twitter Inc (NYSE:TWTR), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN), among others.
But an ugly third quarter from Celgene Corporation (NASDAQ:CELG) has reverberated across the entire biotech sector, adding to the pressure on healthcare stocks as a whole.
Overall, so far earnings have been good enough to keep the broad market rally going. But more key reports are coming next week.
Two healthcare giants will try and top Street expectations — and hopefully change the negative sentiment that seems to surround the entire industry at the moment. Elsewhere, a fallen angel will try to get back in investors’ good graces.
Earnings Reports to Watch: Aetna (AET)
Aetna Inc (NYSE:AET) reports third-quarter results on Tuesday morning — but Q3 numbers almost certainly won’t be the big news coming out of the release. Rather, analysts and investors will be looking for more color on the reported interest in the company by CVS Health Corp (NYSE:CVS).
CVS reportedly is in talks to acquire Aetna, for a price potentially above $200 per share. Analysts no doubt will have many questions about the sales talks on the post-earnings conference call — if Aetna management is willing to discuss them. Is the tie-up a bid to boost growth? Or is it simply a defensive play against the potential entry of Amazon into the pharmacy space, which has roiled stocks in the sector over the past few weeks?
The answers to those questions, and any color on Aetna’s strategy going forward, will have implications that reach well beyond the two companies. An optimistic outlook from Aetna could calm some of the fears that have hit healthcare stocks of late. But given the extent of those fears, that’s likely asking too much.
Earnings Reports to Watch: Pfizer (PFE)
Investors looking for some sort of good news in the healthcare sector should have better luck with Pfizer Inc. (NYSE:PFE), which reports Tuesday after the close. Earnings expectations aren’t particularly high, with the Street looking for roughly 1% sales growth and a 4-cent bump in earnings per share to 65 cents.
Those low expectations in this case are a good thing, since it gives Pfizer a low bar for a much-needed earnings beat. To be sure, Pfizer stock hasn’t exactly been a torrid performer the past few years. But it and fellow large-cap Merck & Co., Inc. (NYSE:MRK) have at least been stable while a number of other drugmakers have seen their shares plummet.
A solid report from Pfizer seems likely — and likely to provide a boost to PFE stock.
Investors still underestimate the company’s ability to navigate in a challenging environment, valuing the stock at less than 13x 2018 EPS estimates. A good Q3 report on Tuesday afternoon will remind investors of what a safe haven PFE truly is. The combination of growth and a 3.6% dividend yield is enough to stay bullish on PFE both before and after earnings.
Earnings Reports to Watch: Under Armour (UAA)
Investors in Under Armour Inc (NYSE:UA, NYSE:UAA) are looking for any good news at this point. UAA stock is at a four-year low. Earnings are guided to decline this year. And yet the stock isn’t cheap, trading at 38x Street estimates for 2017 EPS.
Under Armour is set up to change the narrative surrounding its stock with a strong Q3 report on Tuesday morning. Rival Nike Inc (NYSE:NKE) has spiked of late, with a well-received Investor Day calming some of the fears surrounding the sneaker space. Under Armour’s restructuring plan should cut costs in 2018. A good Q3 ahead of the key holiday season could push investors and analysts to look forward to better times next year, and relieve the constant selling pressure that’s hit the stock of late.
But I’m skeptical Under Armour is going to post the quarter it needs to. Trends still seem to be going against the company. An improved Nike, and a strengthened Adidas AG (ADR) (OTCMKTS:ADDYY), means competition only is going to get tougher.
From a long-term perspective, Under Armour isn’t dead by any means. The company simply hasn’t shown enough of late to take the plunge ahead of earnings. UAA fully is a turnaround story at this point — but so far there just isn’t enough evidence of that turnaround.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.