Healthcare ETFs In Focus On Johnson & Johnson Earnings [Gilead Sciences, Inc., AbbVie Inc]

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July 17, 2014 4:55pm NYSE:IYH NYSE:PPH

healthcare1Sweta Killa: The healthcare space has finally emerged from the biotech sell-off and is largely befitting from the rising wave of pharma mergers and acquisitions as well as the current favorable industry trends in both the pharma and biotech corner.

This is especially true as the first major company reporting second quarter earnings in the healthcare world – Johnson & Johnson’s (NYSE:JNJ) – continued its long streak of beating earnings estimates and increased the full-year outlook.

Johnson and Johnson Results in Detail

Earnings per share came in at $1.66, easily crushing the Zacks Consensus Estimate of $1.54 and the year-ago earnings of $1.48. Revenues climbed 9.1% to $19.5 billion, trumping the Zacks Consensus Estimate of $18.9 billion. The robust performance was driven by nonprescription medicines, including Tylenol and Motrin as well as new drugs sales, especially the hot hepatitis C medicine Olysio.

Based on earnings beat, the company raised its earnings guidance from $5.80–$5.90 to $5.85–$5.92. The mid-point is above the Zacks Consensus Estimate of $5.90 and 2013 reported earnings of $5.52, reflecting bullishness for this company (read: Healthcare Boom Brings This Sector ETF in Focus).

Though Johnson & Johnson’s new hepatitis C pill enjoyed great success in the last quarter, the trend is unlikely to continue as Gilead (GILD) and AbbVie (ABBV) are set to roll out their new competitive hepatitis drugs by the end of the year. The new drugs offered by JNJ’s rivals might erode its strong competitive position in hepatitis C treatment.

Market Impact

This concern over the sustainable sales growth pushed down JNJ shares nearly 2% at the close of the day on elevated volume of more than 2 times the normal average daily volume. The mixed views put several healthcare ETFs having double-digit allocation to this world’s largest maker of healthcare products in focus for the coming days.

Investors should closely monitor the movement in these funds and could catch the opportunity from any surge in the JNJ price or avoid these if the stock drags them down (see: all the Healthcare ETFs here).

ETFs in Focus

Health Care Select Sector SPDR Fund (NYSEARCA:XLV)

The most popular healthcare ETF on the market, XLV follows the S&P Health Care Select Sector Index. This fund manages about $9.8 billion in its asset base and trades in heavy volume of more than 8 million. Expense ratio came in at 0.16% annually. In total, the fund holds about 56 securities in its basket with JNJ at the first spot making up roughly 12.58% of the assets.

Pharma accounts for 45% share from a sector look while biotech, healthcare providers and services, and equipment and suppliers make up for double-digit exposure. The fund gained nearly 11.3% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Pharma ETFs: A Safe Haven from the Biotech Stock Slump?).

iShares U.S. Healthcare ETF (NYSEARCA:IYH)

This fund provides exposure to 110 securities by tracking the Dow Jones U.S. Health Care Index. Here again, Johnson & Johnson dominates the fund’s return at 11.84% of total assets. In terms of industrial exposure, pharma takes the top spot at 48%, followed by biotech (21%), medical equipment (17%) and healthcare services (14%).

The product has amassed nearly $2.5 billion in its asset base while charges 46 bps in annual fees. It trades in good volume of about 295,000 shares a day, suggesting a relatively tight bid/ask spread. IYH is up about 11% year-to-date and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

Market Vectors Pharmaceutical ETF (NYSEARCA:PPH)

This ETF provides a pure play to the pharmaceutical corner of the broad healthcare world by tracking the Market Vectors US Listed Pharmaceutical 25 Index. The fund holds 26 stocks in its basket with Johnson and Johnson taking the top position at 10.80%.

The product has $341.5 million in AUM and charges 35 bps in fees and expense. Volume is moderate as it exchanges just 90,000 shares a day. The fund has added over 17% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

This article is brought to you courtesy of Sweta Killa.

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