North America

Earnings Preview: Johnson & Johnson Q1 2017 (JNJ)

By: Craig Bowles

Overview

Johnson & Johnson (JNJ) is slated to report 1Q 2017 earnings before the opening bell on Tuesday, April 18th. The earnings release is expected at approximately 6:45 a.m. ET with a conference call to follow at 8:30 a.m. that is webcast through J&J investor relations. A member of the Dow Jones Industrial Average, J&J has significant market influence and the potential to impact the broader market gauges.

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Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS) & Earnings Per Share (EPS) Excluding Items: The values for both measures are typically the same and are comparable to consensus estimates. The Street estimate is $1.76 (range $1.66 to $1.84). (Source: Yahoo! Finance)
  • Revenues: Analyst consensus expectations are to increase 3.0% y/y to $18.01 bln (range $17.77 bln to $18.34 bln).
  • Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (FY2017).
  • 2017 full-year earnings guidance: Company sees $6.93 to $7.08. The Street estimate is $7.04 (range $6.98 to $7.23).
  • 2017 full-year revenue guidance: Company sees $74.1 bln to $74.8 bln. The Street estimate is $74.65 bln (range $74.19 bln to $75.57 bln). [JNJ’s 2017 guidance excludes Actelion.]
  • J&J P/E of 20.9 compares to a 5-year average of 19.8; P/B of 4.8 compares to a 5-year average of 3.7; P/S of 4.8 compares to a 5-year average of 3.8; P/CF of 18.5 compares to a 5-year average of 16.4. Dividend 2.6% compares to a 5-year average of 2.9%.
  • Analysts view J&J with 6 Buy, 11 Hold, and 1 Sell rating. (source: MarketBeat.com)
  • J&J insiders sold 227,551 shares over the last three months and sold a net 287,449 shares in the past year. (source: NASDAQ.com) J&J authorized a $10 billion stock buybacks in October 2015 and used $9 billion last year. 2014 had a $5 billion buyback.
  • J&J is the first of the major pharmaceutical companies to report quarterly results and could impact the likes of Pfizer (PFE), Merck (MRK), Abbott Labs (ABT), and Bristol Myers Squibb (BMY).
  • J&J shares tend to see minimal movement off earnings, with the 1-day average price change on earnings of just 1.73%. Options are pricing in an implied move of 1.65% off earnings.

Recent News

  • 04/12: RBC Capital Markets expects more multiple expansion for Johnson & Johnson shares going into earnings through the pending acquisition of Actelion (ATLN), closing in June, according to a post on Barron’s.com.
  • 03/03: After having lost three previous cases involving talcum powder being tied to ovarian cancer, JNJ won a case, according to a post on TheStreet.com.
  • 02/27: J&J drug pricing data shows a 3.5% net hike in 2016, according to a post on CNBC.com.
  • 02/15: Integra LifeSciences (IART) will Buy J&J’s Codman Neurosurgery Business for $1.05B, according to a post on StreetInsider.com.
  • 01/26: Cowen likes the deal where JNJ is buying Actelion for $30 billion, according to a post on Barron’s.com.
  • 01/24: Johnson & Johnson is exploring “potential strategic options” with Goldman for its diabetes care companies ($2 bln) where margins are under pressure, according to a post on bizjournals.com.

Technical Review

Johnson & Johnson made another all-time high in March at $129. Point and figure technicians show $112 to $120 balance area support. The healthcare sector peaked on August 1st, 2016 and two-year smoothed growth rates have been slowing since March 2015 when the sector was the strongest with growth rates over 100. Historically, a sector would be expected to underperform through the next expansion after reaching such a high growth rate. (Chart courtesy of StockCharts.com)

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Summary

Healthcare stocks lagged the Trump rally but have done better recently with the realization that change is unlikely. J&J has $40 bln in cash but that will change dramatically with a $30 billion Actelion purchase. The company has beaten estimates by an average of 5c the last four quarters but the last two quarters beat by 2c with negative market reactions. Estimize consensus for an adjusted EPS of $1.78 on revenue of $18.053 bln compares to analyst consensus of $1.76 on revenue of $18.01 bln. Any change in 2017 guidance would be of interest.

 

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