Biotech in 1Q16: UnitedHealth and Illumina Start Earnings Season
XLV’s large-cap stocks
On April 19, 2016, the large-cap stocks within the Health Care Select Sector SPDR Fund (XLV) fell 0.2%, while the SPDR S&P 500 ETF (SPY) rose 0.3%. Among the 50 large-cap stocks that XLV holds in its portfolio, 21 stocks fell and 29 stocks rose from the previous day’s close. Large-cap stocks account for 98.5% of XLV’s portfolio.
The above graph reflects the daily changes in XLV, XLV’s large-cap stocks, and the SPDR S&P 500 ETF. So far in April, XLV’s large-cap stocks have risen 4.3%, while the SPDR S&P 500 ETF has risen 2.1%.
Illumina’s stock tumbles on revised earnings estimate for 1Q16
Illumina (ILMN) tanked 23.1% as it announced its preliminary 1Q16 earnings. In a press release, Illumina estimated its 1Q16 revenue will be approximately $572 million as compared to Wall Street expectations of $596 million.
The fall in revenue is mainly attributed to lower-than-expected sales of HiSeq 2500, 3000, and 4000 instruments. However, it expects the Americas and Asia Pacific regions will meet expectations in 2016, but Europe will underperform as a result of a few management changes made in the region. Illumina will hold a conference on May 3 to officially announce its 1Q16 earnings. A few days earlier, Horizon Pharma (HZNP) also revised its earnings estimates, and the stock fell 20%. Investors seem to be harsh on stocks with disappointing earnings.
Illumina closed at $136.88 and dropped below its 20- and 100-day moving averages. On a year-to-date basis, the stock has fallen 28.7%. Illumina recorded trade volumes of 11.3 million on April 19 as compared to its three-month average trading volume of 1.5 million shares per day. It is trading at a 2016 forward PE (price-to-earnings) ratio of ~40.4x. The stock is trading at a premium compared to its peers Alexion Pharmaceuticals (ALXN) and Regeneron Pharmaceuticals (REGN), which have 2016 forward PE ratios of ~30.0x and 35.6x, respectively.
Illumina has a book value of $12.61 per share. At its current price, the stock is trading at a PBV (price-to-book value) multiple of ~10.9x. It has a weight of ~0.9% in XLV’s portfolio.
Browse this series on Market Realist: