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One Stock Is Hurting S&P 500 Earnings Growth
S&P 500 companies (^GSPC) reported what has been widely considered a solid first-quarter earnings season for the index, with one important exception: pharmaceutical company Bristol Myers Squibb (BMI).
Last month, the reported company a huge loss per share in the first quarter due to charges related to a series of acquisitions and reduced its profit forecast for the year.
With 92% of S&P companies already reporting, the index is on track for earnings growth of 5.4% compared to the year-ago quarter, which would be the highest year-over-year earnings growth for the index since the second quarter 2022. Take out Bristol, and the pace jumps to 8.3%, according to FactSet senior earnings analyst John Butters.
Overall, the healthcare sector (XLV) saw profits fall 25.4% compared to the same quarter last year, in line with Energy (XLE) drop to the worst performance of the S&P 500 this quarter.
By removing some other companies from the sector, S&P 500 earnings growth would skyrocket even further. Butters also evaluated the index numbers by excluding Pfizer (PFE) and Gilead Sciences (GOLD). Gilead Sciences reported a loss per share of $1.32 in the most recent quarter, compared with earnings per share of $1.37 in the same quarter a year ago. Meanwhile, Pfizer reported earnings per share of $0.82, down from $1.23 in the year-ago quarter.
By eliminating those two companies and Bristol Myers Squibb, the S&P 500 would be on track for 9.7% earnings growth, according to Butters’ analysis.
Interestingly, the decline in profits did not weigh on the sector’s overall performance last month. The healthcare sector rose a modest 1.4% last month, the fourth-best performance of any sector and better than the S&P 500’s 1.2% return during the period.
This is because the decline in profits is not expected to continue in the sector. After Bristol Myers Squibb reported its huge loss attributed to its acquisition of Karuna Therapeutics, analysts expect the company to rebound in the second quarter with earnings per share of $1.69, under $1.75 in the period of the previous year.
The sector’s profits in general are also expected to recover in the second quarter. Data from FactSet shows that healthcare is expected to produce the second-highest annual growth of any sector in the second quarter, with the Wall Street consensus projecting 17.2%.
FundStrat head of research Tom Lee wrote in a note to clients on May 10 that recoveries are currently expected in healthcare, energy and materials (XLB) are “a tailwind for stocks.”
The story continues
View of the Bristol Myers Squibb booth in the exhibit hall before guests arrive at the 2016 Pennsylvania Women’s Conference at the Pennsylvania Convention Center on October 6, 2016 in Philadelphia, Penn. (Marla Aufmuth/Getty Images for Pennsylvania Conference for Women) (Marla Aufmuth via Getty Images)
Correction: An earlier version of this article misspelled Bristol Myers Squibb. We regret the error.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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