The health care sector is just barely participating in the S&P 500’s nascent rally, but pharmaceuticals such as AbbVie (NYSE:ABBV), Merck (NYSE:MRK) and Pfizer (NYSE:PFE) are holding up well relative to the broader market.
All three reported earnings recently, and while none got a bounce, all are holding above previous structure lows.
As a whole, the health care sector has notched a return of 0.98% in the past month, as tracked by the Health Care Select Sector SPDR ETF (NYSEARCA: XLV). Although the sector is boasting gains, it still lags every other sector in the past month.
AbbVie, whose top revenue-generating drug is rheumatoid arthritis treatment Humira, earned $3.37 in the second quarter on revenue of $14.6 billion. Those were year-over-year increases of 11% and 4%, respectively.
The company’s revenue has slowed since December 2020. One reason for caution: AbbVie’s exclusive marketing for Humira is ending, as generic versions of the drug will be hitting the market.
Humira notched big sales in the recent quarter, helping to offset reduced demand for AbbVie’s cancer treatment, Imbruvica, which is losing ground to AstraZeneca’s (NYSE: AZN) Calquence.
For the full year, analysts expect AbbVie to earn $13.86 per share, a gain of 10% over 2021. That’s seen declining by 14% next year, which is not surprising, given the prognosis for Humira and Imbruvica.
AbbVie has been correcting since April. Its current formation shows a 23% drawdown, but the stock remains above its June 16 low of $135.76.
Meanwhile, Merck earned $1.87 per share, up 43% from the year-ago quarter. Revenue was $14.6 billion (yes, the same number as AbbVie), a year-over-year increase of 28%.
According to MarketBeat earnings data, the company beat analysts’ bottom-line views by $0.18 per share. It was the fourth quarter in a row that Merck outpaced expectations.
Revenue topped views in each of the past four quarters.
Revenue from the company’s Covid treatment, Lageverio, declined to around $1.2 billion from $3.25 billion in the prior quarter. Clinical trials revealed that Pfizer’s Paxlovid treatment was more effective than Lagevrio.
Meanwhile, Keytruda sales increased by 26% to $5.3 billion, and sales of Gardisil, its treatment for human papillomavirus, grew 36% to $1.7 billion.
Merck shares initially began their decline in late May, then attempted a rebound a month later, hitting resistance at $96.72 before retreating again. Given the market’s ongoing volatility this summer, it’s not unusual to see a failed breakout attempt. At this juncture, Merck shares remain in correction mode, underperforming the broader market.
Pfizer has been in a correction since December. It reached a structured low of $45.40 on February 24. The stock has held above that level since then, despite sinking in mid-June before another rally attempt.
The company reported second-quarter earnings of $2.04 per share, topping views by $0.09. The company also exceeded top-line expectations, with sales coming in at $27.74, ahead of analysts estimate of $26.20 billion.
The report marked a year-over gain of 47% on the top line and a 92% gain on the bottom line.
Looking to the full year, Pfizer reiterated its sales guidance of $32 billion for its Covid vaccines, as well as guidance of $22 billion in revenue for Paxlovid.
The pharmaceutical industry in general is “middle of the pack,” in terms of performance. That hasn’t changed much in the past two months, although other areas of the health care sector, such as hospitals and long-term care facilities, are faring better.
While the idea of snapping up undervalued shares is appealing, the continued volatility in even large-cap healthcare names means caution is warranted. While AbbVie, Merck, and Pfizer all have fairly low betas relative to the broader market, there’s always added risk with an individual stock.
That’s often amplified by the nuances of clinical trials, generic drug sales, and other developments specific to the pharmaceutical industry. In addition, with other healthcare industries performing better, the pharma stocks may still be in “watch list” mode until they prove they can launch a sustained rally.