Healthcare Sector Revisions: Interesting Relative To Sector Performance

| About: Health Care (XLV)

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 "Analysts 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 (NYSE:PFE), with much smaller positions in Merck (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) and the iShares US Pharmaceuticals ETF (NYSEARCA:IHE).

Johnson & Johnson (JNJ), Intuitive Surgical (NASDAQ:ISRG) and Abbott Laboratories (NYSE:ABT) report this coming week.

Here is how some of the major ETFs have performed this year:

Click to enlarge

As a sector within the S&P 500, healthcare was up just 1.5% YTD as of 9/30/16 and up just +0.9% in Q3 '16. (Source: JPMorgan "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.