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Is a Beat in Store for Glaxo (GSK) This Earnings Season?

We expect GlaxoSmithKline plc GSK to beat expectations when it reports second-quarter 2019 results on Jul 24, before market open. In the last reported quarter, the company delivered a positive surprise of 19.7%.

Shares of Glaxo have outperformed the industry so far this year. The stock has gained 7.6% against the industry’s decrease of 1.2%.

Glaxo’s earnings performance has been mixed so far. The company’s earnings surpassed estimates in three of the trailing four quarters and missed the same once with the average beat being 9.38%.

Let’s see how things are shaping up for this quarter.

Factors to Consider

Sales in Glaxo’s Pharmaceuticals segment are expected to be driven by solid sales of new HIV and respiratory drugs.

We expect encouraging sales growth of Juluca, Tivicay and Triumeq in the second quarter of 2019. Moreover, single tablet, two-drug regimen, Dovato, was approved in April for newly diagnosed patients with HIV-1 in the United States. Investors will be interested to know the sales numbers for the new vaccine during the quarter.  A strong uptake will further boost the HIV segment sales. However, older HIV drugs are facing generic competition or losing patients to new regimens. This will likely dent their sales in the soon-to-be reported quarter.

Sales of Respiratory category are likely to rise, as in the first quarter, on the back of strong growth of Trelegy Ellipta and Nucala. Label expansion for Trelegy Ellipta late last year and global rollout of Nucala boosted the sales of the drugs in the first quarter. We expect the trend to continue in this quarter. However, older respiratory drugs are facing generic competition, which has severely impacted sales especially that of Advair. The decline is expected to be reflected in the second-quarter results. Moreover, Relvar/Breo Ellipta are facing competitive and pricing pressure in the United States which is likely to unfavorably impact the sales.

Please note that Glaxo started reporting sales of Ellipta products and Nucala only under the Respiratory category and transferred older respiratory drugs including Seretide/Advair under Established Pharmaceuticals category from the first quarter.

Glaxo’s immuno-inflammation drugs like Benlysta are expected to record growth in the second quarter. A label expansion in April of the drug to include pediatric patients with systemic lupus erythematosus will likely boost sales this quarter. Oncology sales, solely from Zejula, are likely to remain on the growth path.

The Vaccines segment is likely to benefit from sustained uptake of its successful shingles vaccine, Shingrix. In May, the vaccine received approval in China. Moreover, meningitis vaccines Bexsero and Menveo, acquired from Novartis AG NVS, returned to growth in the first quarter. Increase in the sales of these drugs will further boost segment sales in the soon-to-be reported quarter. Influenza vaccines had an impressive run in the first quarter. However, demand for these vaccines fluctuates every season and therefore sales may vary.

In Consumer Healthcare segment, sales are likely to be driven by Oral health and Nutrition products. However, rising competition in Europe and declining sales of the Skin health category will have a negative impact.

Earnings Whispers

Our proven model indicates that Glaxo is likely to beat earnings estimates in the soon-to-be reported quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate (65 cents) and the Zacks Consensus Estimate (64 cents), stands at +1.31%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Glaxo has a Zacks Rank #3. The combination of a positive Earnings ESP and a favorable Zacks Rank makes us reasonably confident of an earnings beat.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some large-cap pharma stocks that you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat in their upcoming releases.

Merck & Co., Inc. MRK has an Earnings ESP of +0.80% and a Zacks Rank #2. The company is scheduled to release first-quarter results on Jul 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allergan plc AGN has an Earnings ESP of +3.52% and a Zacks Rank #3.

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