HealthCare Sector Revisions: Interesting Relative to Sector Performance

Here is an interesting trend in HealthCare sector earnings growth revisions:

  • Q3 ’17: +12.3% on 10/14 vs +12.0% as of October 1
  • Q2 ’17: +8.4% as of 10/14 vs +8.3% as of October 1
  • Q1 ’17: +8.0% as of 10/14 vs +7.9% as of October 1
  • Q4 ’16: +8.2% as of 10/14 vs +8.3% as of October 1
  • Q3 ’16: +5.4% as of 10/14 vs +5.6% as of October

Source: Thomson Reuters “This Week in Earnings” 10/14/16

The small upward revisions don’t seem like much today, but remember, at this point for forward quarters, we typically see downward and lower revisions.

The first thought that crossed me mind seeing this trend was that ” Analyst’s aren’t worried about election ramifications”, i.e. California’s Prop 61 or Hillary Clinton’s comments about price controls.

However, things can change.

The biggest HealthCare position for clients is Pfizer (PFE) with much smaller positions in Merck (MRK) and Johnson & Johnson (JNJ) and IBB (Biotech ETF) and IHE (Healthcare ETF).

Johnson & Johnson (JNJ), Intuitive Surgical (ISRG), and Abbott Labs report this coming week.

Here is how some of the major ETF’s have performed this year:

fc-healthcare-etfperf101616

As a sector within the SP 500, Healthcare was up just 1.5% YTD as of 9/30/16, and up just +0.9% in Q3 ’16. (Source: JP Morgan “Guide to the Markets”.)

This blog post will be updated in a month. The election will be over, investors will be able to see what Congress looks like, and analysts will have greater detail on 2017 after earnings reports.

The point being there is a divergence occurring between HealthCare sector earnings growth revisions and the sector performance.

Keep an eye on this – it is where opportunity arises.

 

 

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