XOMA's Liquidation Pivot May Be Masking a Drying Royalty Stream

Xoma Royalty Corporation (NASDAQ: XOMA) reports first-quarter 2026 earnings on May 12, 2026, with analysts expecting a sharp turnaround from recent volatility. After delivering three earnings beats in the past four quarters—including a stunning 500% surprise in Q2 2025—followed by a dramatic miss in Q3, investors face a critical question: can XOMA return to its pattern of exceeding expectations, or will the royalty-based business model continue to produce unpredictable results? With analyst sentiment deteriorating and the stock trading near multi-year highs, this report will test whether the company's licensing and milestone revenue streams can deliver consistent growth.

Part 1: Earnings Preview

Xoma Royalty Corporation operates as a biotechnology royalty aggregator, generating revenue by licensing and acquiring milestone payments and royalty interests in drug candidates developed by other pharmaceutical companies rather than conducting internal drug discovery. This asset-light model creates lumpy, event-driven revenue tied to the clinical and commercial progress of partnered therapies.

Earnings Expectations: XOMA reports Q1 2026 results on May 12, 2026, with analysts projecting EPS of $0.19 on revenue estimates that remain unavailable in consensus data. The company most recently reported Q4 2025 EPS of $0.12, which beat estimates of -$0.13 by 192%. Comparing to the same quarter last year, the $0.19 estimate represents +216.67% growth versus Q1 2025's actual result of $0.06, suggesting analysts expect a significant acceleration in milestone payments or royalty income.

Key Themes Defining This Release:

• Milestone Payment Timing and Magnitude: XOMA's revenue is inherently unpredictable, driven by whether partnered drug programs hit clinical, regulatory, or commercial milestones during the quarter. Investors will scrutinize whether new licensing deals or advancement of existing partnered assets generated meaningful milestone payments in Q1, as this directly determines whether the company can meet the aggressive $0.19 EPS estimate.

• Royalty Revenue Trajectory: Beyond one-time milestones, the sustainability of XOMA's business depends on recurring royalty streams from commercialized therapies. Any updates on royalty-generating assets—particularly growth rates or new products reaching market—will signal whether the company is building a more predictable revenue base or remains dependent on volatile milestone events.

• Pipeline Expansion and Capital Deployment: With XOMA's model centered on acquiring royalty interests, investors will watch for announcements of new deals or additions to the partnered pipeline. The company's cash position and ability to deploy capital into accretive royalty acquisitions will determine long-term growth potential, especially as analysts project a sharp deceleration to $0.21 EPS in Q2 2026 (-56.25% quarter-over-quarter growth).

Analyst Commentary: Heading into the release, analysts remain cautious despite the strong estimate. The wide range of EPS forecasts—from a low of -$0.16 to a high of $0.50—reflects deep uncertainty about milestone timing, with some analysts modeling minimal revenue events while others anticipate significant payments. The deterioration in analyst sentiment over the past month, combined with downgrades from Strong Buy to Hold ratings, suggests growing skepticism about XOMA's ability to deliver consistent results given the inherent unpredictability of its royalty-based model.

Part 2: Historical Earnings Performance

XOMA has demonstrated extreme volatility in earnings performance over the past year, with results swinging wildly between massive beats and significant misses. The company delivered +123% surprise in Q1 2025 (reporting $0.06 versus -$0.26 estimate), followed by an extraordinary +500% surprise in Q2 2025 ($0.48 versus -$0.12 estimate). However, Q3 2025 saw a dramatic reversal with a -1,650% miss (-$0.35 versus -$0.02 estimate), before XOMA rebounded in Q4 2025 with a +192% beat ($0.12 versus -$0.13 estimate).

This pattern reveals the fundamental challenge of XOMA's business model: milestone-driven revenue creates binary outcomes that are nearly impossible to forecast accurately. The company has beaten estimates in three of the past four quarters, but the magnitude of both beats and misses suggests analysts struggle to predict when partnered drug programs will trigger milestone payments. The Q3 2025 miss stands out as particularly severe, likely reflecting a quarter where expected milestone events failed to materialize or were delayed.

The recent Q4 2025 beat provides some optimism heading into Q1 2026, suggesting XOMA may have regained momentum in its partnered pipeline. However, the historical pattern warns investors that even with a strong estimate of $0.19 for Q1 2026, actual results could vary dramatically in either direction depending on the timing of milestone payments and royalty recognition during the quarter.

Note: These figures reflect diluted GAAP earnings per share, reported before non-recurring items, and may differ from the non-GAAP figures used by some sources.

Part 2.1: Price Behavior Around Earnings

XOMA typically reports earnings before market open, meaning Day 0 captures the first full trading session reaction while Day +1 reflects follow-through momentum.

Historical price behavior shows XOMA experiences significant volatility around earnings, with an average absolute Day 0 move of 6.02% and Day +1 move of 3.26%. The stock has demonstrated a tendency for large initial reactions, with Day 0 moves ranging from -6.96% to +14.40% over the past eight reports. Notably, the direction of Day 0 moves has generally aligned with earnings surprises—the August 2024 report that delivered a massive beat saw a +14.40% Day 0 surge, while the November 2024 miss triggered a -6.96% decline.

The Day +1 follow-through has been more muted but still meaningful at 3.26% on average, suggesting investors continue to digest and react to earnings results beyond the initial session. Intraday volatility is also substantial, with average Day 0 range of 7.28% and Day +1 range of 6.12%, indicating significant price discovery occurs during and after the earnings release. Given the upcoming Q1 2026 estimate implies a strong beat versus last year, investors should prepare for potential double-digit percentage moves if results significantly exceed or miss the $0.19 consensus.

Part 2.2: Options Market Expected Move

The options market is pricing an expected move of 1.02% through the May 15 expiration, which is dramatically lower than XOMA's historical average earnings move of 6.02% on Day 0. This suggests options traders are either underestimating potential volatility or the market expects a more muted reaction to this particular report compared to historical patterns.

Part 3: What Analysts Are Saying

Analyst sentiment toward XOMA has deteriorated over the past month, reflecting growing caution about the stock's valuation and earnings predictability. The current average recommendation stands at 3.67 (between Hold and Buy), with the consensus price target of $44.50 implying 7.2% upside from the current price of $41.51. The target range spans from a low of $39.00 to a high of $50.00, indicating modest disagreement about fair value.

The rating breakdown shows a notable shift in analyst positioning: the stock currently has 2 Strong Buy ratings, 0 Moderate Buy ratings, and 4 Hold ratings, with no sell recommendations. However, just one month ago, XOMA commanded 4 Strong Buy ratings and only 2 Hold ratings, meaning two analysts downgraded from Strong Buy to Hold during this period. This represents a meaningful cooling of enthusiasm, likely driven by concerns about the sustainability of recent earnings beats and the inherent unpredictability of milestone-driven revenue.

The deterioration in sentiment comes despite XOMA's strong recent performance, suggesting analysts are taking profits or becoming more cautious at current valuation levels. The fact that the average recommendation has declined from 4.33 to 3.67 in just one month indicates growing skepticism about whether the company can maintain its earnings momentum, particularly given the wide range of Q1 2026 EPS estimates (-$0.16 to $0.50) that reflects deep uncertainty about milestone timing.

Part 4: Technical Picture

XOMA enters earnings with strong technical momentum, as the Barchart Technical Opinion currently shows an 88% Buy signal, unchanged from last week but significantly improved from 40% Buy one month ago. This sharp improvement over the past month reflects the stock's sustained uptrend and positive price action heading into the Q1 2026 report.

Timeframe Analysis:

• Short-term (100% Buy): Maximum bullish signal indicates powerful near-term momentum with no technical resistance in the immediate timeframe
• Medium-term (100% Buy): Equally strong intermediate-term signal confirms the uptrend is well-established beyond just short-term trading
• Long-term (50% Buy): Moderate bullish reading suggests some caution in the longer-term trend, though still tilted positive overall

Trend Characteristics: The combination of Strong strength and Average direction indicates XOMA is in a robust uptrend with solid momentum, though not yet reaching extreme overbought conditions that might signal exhaustion.

The stock is trading at $41.51, positioned above all major moving averages except the 5-day ($41.59). Specifically, XOMA trades above its 10-day ($41.32), 20-day ($40.44), 50-day ($34.11), 100-day ($30.06), and 200-day ($31.60) moving averages, demonstrating strong technical support across all timeframes. The fact that the stock has climbed more than 38% above its 100-day moving average and 31% above its 200-day average indicates an extended rally that has built substantial cushion above long-term trend lines.

Key technical levels to watch include the 5-day moving average at $41.59 as immediate support, with the rising 20-day average at $40.44 providing a secondary floor. The stock's position well above all major moving averages creates a supportive technical setup heading into earnings, though the extended nature of the rally (trading 22% above the 50-day average) means a disappointing report could trigger profit-taking back toward the $40 level. Overall, the technical picture is constructive for bulls, with strong momentum and multiple layers of moving average support suggesting the path of least resistance remains higher if XOMA can deliver on the aggressive $0.19 EPS estimate.