Earnings Surprises: Effects on Healthcare Stock Performance

Immediate Market Reaction

Immediate market reactions to earnings surprises in healthcare stocks, such as those from CVS Health Corporation, often involve swift adjustments in pricing strategies and investor outlooks for major segments like Medicare Advantage and PBMs. These actions reflect the market's rapid response to quarterly performance results.

"definitely will be contracted with us. Yes. That's awesome. But I guess it'd be interesting to understand what's the market reaction and like the outlook for the other major PBMs?" --- (CVS, conference, 2024/05/29)

"So really good results in that health care delivery part of our company. Obviously, in the quarter, we had a tough quarter in Medicare Advantage, which was disappointing to us, as I said earlier, but we took immediate action and the most immediate action that we could take to influence 2025 was pricing." --- (CVS, conference, 2024/05/29)

Long-Term Performance Trends

Healthcare companies like UnitedHealth Group, Pfizer, Johnson & Johnson, Medtronic, and Abbott Laboratories are demonstrating strong long-term growth trends. They emphasize strategic growth pillars, sustained progress, and consistent double-digit growth, projecting confidence in achieving long-term growth objectives and high single-digit total returns.

"We're continuing to build our business based on the five strategic growth pillars that we're relentlessly focused on, and we're steadfastly confident in our ability to achieve our 13% to 16% long-term growth objective as we look to the years ahead." --- (UNH, earning call, 2024/Q1)

"I think we're not changing our expectations, both short-term and long-term for Seagen, but I think we're cautiously optimistic as we look forward." --- (PFE, earning call, 2024/Q1)

"solid start of the year that puts us in a position of strength for 2024. And it also the sustained progress gives us -- give me great confidence in achieving our long-term growth goals of operational sales compounded annual growth rate of 5% to 7% from 2025 to 2030." --- (JNJ, earning call, 2024/Q1)

"And so maybe at a broad level and not asking you for longer term guidance. Maybe just conceptually, you take the 4% to 5% top line growth, gross margin gross profit grows a little faster than that over time, OpEx grows a little slower, You have sort of operating earnings growing high single digits, maybe buyback a little stock to keep the share count flat and then the dividend gets you to the high single digit total return." --- (MDT, conference, 2024/06/11)

"Turning to EPD or sales increased 14% in the quarter. This quarter was a continuation of EPDs impressive trend of strong performance, including double-digit growth in four of the last five quarters." --- (ABT, earning call, 2024/Q1)

Sector-Specific Impacts in Healthcare

Healthcare sector-specific impacts include significant financial hits from cyberattacks (UNH), rising expenditures (CVS), and broader economic pressures (MDT). However, some companies like ABT and MRK report strong growth and sales increases, highlighting diverse performance within the sector.

"In the first quarter 2024, as a result of the Change Healthcare cyberattack, we incurred $340 million of medical costs related to the temporary suspension of some care management activities, impacting our UnitedHealthcare and Optum Health businesses, to help care providers with their workflow processes." --- (UNH, sec filing, 2024/Q1)

"the negative financial impact of the increasing expenditures within the Health Care Benefits segment." --- (CVS, press release, 2024/07/15)

"Obviously there are areas that we could always do better, and we focus on that; but at the highest level, all four of our sectors have been delivering outstanding growth, market-leading growth, and quite frankly innovating and fulfilling our purpose and our mission, which is to help people live healthier lives.I like the diversity." --- (ABT, earning call, 2024/Q2)

"It's just payers can't just we can't keep the U. S. For example, as a percent of GDP, I mean, healthcare is nearing 20%." --- (MDT, conference, 2024/06/11)

"care business sectors sector, our net sales in health care increased 2.7% as reported to €8,050,000 Excluding currency effects, net sales of Healthcare jumped by a strong 8.5% organically." --- (MRK, event transcript, 2024/04/26)

Healthcare vs. Other Sectors

Healthcare stocks, driven by strategic business opportunities and M&A activities, show resilience and potential for long-term growth despite pricing pressures. In contrast, tech companies aiding healthcare, like Microsoft, highlight the sector's evolving dynamics, potentially influencing stock performance differently than traditional sectors.

"We consistently evaluate new business opportunities through a strategic and scientific lens to deliver value for patients and for Our preference is to be in areas in which we have internal capabilities and know how and also to pursue products that represent progress in improving the current standard of care." --- (JNJ, AGM, 2024/04/25)

"Changes to the U.S. health care system enacted in prior years as part of health care reform, as well as increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, have contributed to pricing pressure." --- (MRK, sec filing, 2024/Q1)

"David Roman: Super helpful, thank you.Then maybe just on the capital allocation side, maybe thinking about the other side of Josh’s question, if you look across the sector here, we’ve seen M&A pick up a little bit in the second quarter - I think there were two billion dollar-plus transactions announced with transaction multiples starting to trend toward the lower end of historical levels." --- (ABT, earning call, 2024/Q2)

"As the tech sector races to provide the market with solutions, several companies are emerging as leaders in aiding the healthcare sector, including Avant Technologies Inc. (OTC:AVAI), Microsoft Corporation (NASDAQ:MSFT) (NEO:MSFT), Health Catalyst, Inc. (NASDAQ:HCAT), Ginkgo Bioworks Holdings, Inc. (NYSE:DNA), and Recursion Pharmaceuticals, Inc. (NASDAQ:RXRX)." --- (MSFT, press release, 2024/04/25)

"In 2023, this included Avisco for a rare disease and hungry, for example. We remain confident that our focused leadership approach in health care represents very solid basis for long term growth." --- (MRK, event transcript, 2024/04/26)

Investor Sentiment and Expectations

Investor sentiment in the healthcare sector is highly sensitive to earnings surprises. Medtronic's swift response to shattered investor confidence and Pfizer's acknowledgment of shareholder disappointment highlight the critical impact of earnings performance on expectations. Conversely, Pfizer's adjusted EPS exceeding expectations positively influenced investor sentiment.

"Investor confidence was shattered, and the future looked bleak. Breen's response was swift and decisive." --- (MDT, press release, 2024/04/17)

"Q1 reported diluted earnings per share were $0.55 cents. Our adjusted diluted EPS was $0.82 which exceeded our expectations due to favorable gross margin performance as well as strong cost management across the enterprise. As I stated earlier, during the quarter" --- (PFE, earning call, 2024/Q1)

"We know our shareholders are disappointed in the performance as we are as well. The executive team, the Board and personally me as the Chairman and CEO of this company, We accept responsibility for the company's performance against our targets." --- (PFE, event transcript, 2024/04/25)

Case Studies: Long-Term Impacts

Long-term impacts of earnings surprises on healthcare stocks are uncertain, as noted by Pfizer. However, Johnson & Johnson highlights positive outcomes from landmark studies and new market opportunities, suggesting potential long-term benefits. Merck also anticipates earlier-than-expected positive impacts on patients, indicating favorable long-term stock performance.

"At this time, longer term impacts to the Company are uncertain and subject to change." --- (PFE, sec filing, 2024/Q1)

"I think that's going to be bolstered by the landmark results, the first time in 25-years, where we have the DanGer Shock study showing survivability benefits of Impella, which will continue to open new markets for that portfolio. And then finally, I'll end with how delighted we are to inch very, very short order, welcome Shockwave to Johnson & Johnson." --- (JNJ, earning call, 2024/Q2)

"So the opportunity to positively impact those patients is sooner than expected." --- (MRK, conference, 2024/05/15)

Regulatory and Policy Influences

Regulatory and policy changes, particularly in Medicare programs, significantly impact healthcare companies like CVS and JNJ, affecting their financial performance and stock prices. Government agreements and vaccination rates also play a crucial role, as seen with Pfizer, highlighting the sector's sensitivity to regulatory environments.

"Key Regulatory Trends and Uncertainties • The Company is exposed to funding and regulation of, and changes in government policy with respect to and/or funding or regulation of, the various Medicare programs in which the Company participates, including changes in the amounts payable to us under those programs and/or new reforms or surcharges on existing programs, including changes to applicable risk adjustment mechanisms." --- (CVS, sec filing, 2024/Q1)

"We have strong momentum with key end-market products and continue to advance our pipeline with significant clinical and regulatory milestones being attained. Our MedTech business delivered growth that fell below our expectations of growing in the upper range of our markets, which as you recall correlates to a weighted-average market growth rate of 5% to 7% from 2022 through 2027." --- (JNJ, earning call, 2024/Q2)

"Outside the US, our initial projections were based on agreements that were already in place when we made these projections. However, because of the significant drop in vaccination rates, we had to renegotiate several of these agreements or reallocate deliveries under agreements with some governments that resulted in them purchasing in 2023 quantities far below their original commitments. So that's the reason for Commerzbank. Now let's move to Paxlovid." --- (PFE, event transcript, 2024/04/25)

"Got you. Last question I'm going to see up here. And this is, pre cooling, PBM policy, PBM regulatory environment would be like that first question we'd ask." --- (CVS, conference, 2024/05/29)

"As we continue to bring new innovations to market and execute against clinical and regulatory milestones, Innovative Medicine is well-positioned to achieve sustainable growth in both the near and long-term.Turning to MedTech, we continue to advance our pipeline, launch new commercial products and integrate strategic acquisitions that broaden and further differentiate our portfolio." --- (JNJ, earning call, 2024/Q2)

Technological Innovations and Earnings Surprises

Technological innovations in healthcare, such as differentiated cardiovascular solutions and strategic growth investments, are driving premium pricing and higher growth rates, leading to consistent earnings surprises for companies like JNJ, ABT, MDT, and PFE.

"I do think we benefit from the global nature of our business. While there are pockets cost containment efforts that we're managing, like VBP in China, we see tremendous opportunity to really secure a premium pricing, especially where we have differentiated innovation. And especially now that we're entering or are entering is like cardiovascular of significant unmet need, there is tremendous opportunities for us to ensure that we secure premium pricing for truly differentiated innovations, especially in areas like electrophysiology, in heart recovery with Abiomed, and more recently with Shockwave. Thank you." --- (JNJ, earning call, 2024/Q2)

"If you focus on innovation on meeting needs, unmet needs, you can turn a market around. From a vascular perspective, as I said in my comments, we’re trying to--we’ve been repositioning the portfolio to more higher growth areas, peripheral areas, endovascular areas, but we started that a little bit later than what we did in CRM, so I expect to start to see our vascular business start to also contribute to a higher growth rate, the same way that CRM is, and that just kind of bolsters our entire med tech portfolio and gets us into that 12%, 13% growth rate, at least that’s our target." --- (ABT, earning call, 2024/Q2)

"And we've purposely driven investments in our strategic growth drivers as we work to commercialize many of the exciting innovations that we've got heading into '25." --- (MDT, earning call, 2024/Q4)

"Many of you joined us at our Oncology Innovation Day in February, and I hope you found it to be a valuable opportunity to see how we are well positioned to achieve world-class oncology leadership." --- (PFE, earning call, 2024/Q1)

"Joe Wolk: Dave, I'd also remind you too that over the last six years, and certainly a compliment to John, Jennifer and the team, that innovation really underscores the success that we've had with quarter in, quarter out performance in our Innovative Medicines business." --- (JNJ, earning call, 2024/Q2)