Healthcare has been the second-best performing sector in the three-month time period driven by its non-cyclical nature, which provides a defensive tilt to the portfolio in a turbulent market against a rising M&A and positive regulatory backdrop.

A popular ETF like Health Care Select Sector SPDR Fund (XLV  - Free Report) has gained 6.1%, while Vanguard Health Care ETF (VHT  - Free Report), iShares U.S. Healthcare ETF (IYH - Free Report) and Fidelity MSCI Health Care Index ETF (FHLC - Free Report) are up more than 7% each. The strength is likely to continue heading into the Q2 earnings season as some big names like Pfizer (PFE - Free Report) , Merck (MRK  - Free Report), Amgen (AMGN  - Free Report), AbbVie (ABBV  - Free Report), Gilead Sciences (GILD - Free Report) and Bristol-Myers Squibb (BMY - Free Report) are lined up to report this week and in the next. All these stocks collectively account for a 25% share in XLV, 23.3% in IYH, 21.6% in VHT and 21.2% in FHLC.

Let’s dig deeper into the earnings picture of these companies that would drive the performance of the above-mentioned funds in the coming days:

According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while a Zacks Rank #4 or 5 (Sell-rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Pfizer has a Zacks Rank #3 and an Earnings ESP of +0.89%, indicating a reasonable chance of beating estimates this quarter. The stock has seen no earnings estimate revision for to-be-reported quarter over the past 30 days and delivered an average positive earnings surprise of 5.23% for the past four quarters. It has a VGM Score of C. Pfizer is scheduled to report earnings on Jul 31, before the opening bell.

Merck is expected to report results on Jul 27 before the market opens. It has a Zacks Rank #3 and an Earnings ESP of -1.13%. The stock delivered a positive earnings surprise in the last four quarters, with an average beat of 8.55% and witnessed positive earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. Merck has a VGM Score of D.

Amgen carries a Zacks Rank #3 and has an Earnings ESP of +1.46%, indicating a reasonable chance of beating estimates this time around. The earnings surprise track over the past four quarters is strong, with an average positive surprise of 3.54%. Amgen has witnessed no earnings estimate revision over the past 30 days for the quarter to be reported. The stock has a solid VGM Score of A. Amgen will report earnings on Jul 26 after market close.

AbbVie has a Zacks Rank #3 and an Earnings ESP of +0.15%. The company delivered a positive earnings surprise in the last four quarters, with an average beat of 2.39% and has seen no earnings estimate revision over the past month for the to-be-reported quarter. The stock has a solid VGM Score of A. The company is scheduled to report on Jul 27 before the opening bell.    

Gilead is expected to release earnings on Jul 25 after market close. It has a Zacks Rank #2 and an Earnings ESP of +0.15%, indicating a higher chance of beating estimates this quarter. Gilead delivered positive earnings surprises of 4.98% over the last four quarters and has seen positive earnings estimate revision of three cents over the past month for the to-be-reported quarter. It has a VGM Score of D.

Bristol-Myers will likely report earnings on Jul 26 before the opening bell. It has a Zacks Rank #3 and an Earnings ESP of +0.79%. The stock delivered an average positive earnings surprise of 2.71% over the past four quarters and witnessed no earnings estimate revision for the to-be-reported quarter in a month. It flaunts a top VGM Score of A.

Summing Up

With earnings surprises well in the cards, the healthcare sector is expected to witness earnings growth of 9.1% in the second quarter, suggesting continued outperformance for healthcare ETFs. In particular, all the four ETFs have a Zacks ETF Rank #2 .