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AbbVie Inc's. (ABBV) Q2 Earnings: Disappointment in Store?

AbbVie Inc. ABBV is scheduled to release second-quarter 2017 earnings, before the opening bell on Jul 28.

AbbVie’s shares have rallied 18.2% so far this year, while the industry has recorded an increase of 13.2%.

Last quarter, the company delivered a positive surprise of 1.59%. We note that AbbVie’s earnings history is a mixed bag as the pharmaceuticals company delivered positive surprises in the two of the last four quarters but recorded in-line earnings in the other two. The average earnings beat for the last four quarters is 1.65%.

AbbVie Inc. Price and EPS Surprise

AbbVie Inc. Price and EPS Surprise | AbbVie Inc. Quote

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

Factors to Consider

At the first-quarter 2017 conference call, management revealed that it expects second-quarter 2017 earnings in the range of $1.39–$1.41 per share. Revenues are expected to grow between 7% and 8% on a reported basis. Currency headwinds are expected to hurt revenues by 1%.

The company’s key drug, Humira, is likely to remain the main growth driver in the second quarter. Increasing awareness, favorable clinical data, additional indications and expansion into new markets are expected to help the product continue making significant contributions to the top line. This quarter, AbbVie also expects Humira sales growth in the U.S. in the mid-to-high teens range while internationally, Humira sales are expected to rise in a mid-single-digit range on an operational basis.

Though Humira is doing well, the company is concerned about the product’s long-term prospects owing to the potential biosimilar competition.

Another area of focus is the performance of Imbruvica, added to AbbVie’s portfolio following its May 2015 acquisition of Pharmacyclics. The drug recorded strong sales since past few quarters, a trend that we expect to continue. Imbruvica has multi-billion dollar potential and the company is looking to expand the drug’s label for solid tumors and autoimmune diseases.

The company expects the Imbruvica sales growth in the U.S. to approach 35% in the second quarter.

Although Imbruvica has huge commercial potential, investors should know that revenues from it will be shared with Johnson & Johnson JNJ, which has a collaboration agreement with Pharmacyclics.

Other drugs like Duopa and Creon are also expected to continue to perform well in the soon-to-be-reported quarter.

However, Abbvie’s Hepatitis C virus (HCV) treatment, Viekira, will continue to be adversely impacted by an intense pricing and competitive pressure in the HCV market.

Notably, last month, the company announced that the Committee for Medicinal Products for Human Use (CHMP) recommended a marketing approval of its investigational, hepatitis C virus (HCV) combo regimen of glecaprevir/pibrentasvir (G/P). The candidate will be marketed by the trade name of Maviret.

A decision from the European Commission is expected in the third quarter of 2017. An approval will definitely provide the company with a stronger presence against the competitive dynamics in the HCV market.

Earnings Whispers

Our proven model does not conclusively show that AbbVie is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for AbbVie is -0.71% as the Most Accurate estimate is pegged at $1.39 per share and the Zacks Consensus Estimate stands higher at $1.40. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though AbbVie’s Zacks Rank #3 increases the predictive power of the ESP, its -0.71% Earnings ESP makes the surprise prediction difficult.

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

Stocks That Warrant a Look

Here are some better-ranked health care stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Novo Nordisk A/S NVO is scheduled to release its results on Aug 9. The company has an Earnings ESP of +3.57% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer Inc. PFE, scheduled to release its results on Aug 1, has an Earnings ESP of +1.54% and a Zacks Rank #3.

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