North America

Earnings Preview: Johnson & Johnson Q2 2016 (JNJ)

By: Craig Bowles

Overview

Johnson & Johnson (JNJ) is slated to report 2Q 2016 earnings before the opening bell on Tuesday, July 19th. The earnings release is expected at approximately 7:45 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 $1.69 (range $1.63 to $1.79). (Source: Yahoo! Finance)
  • Revenues: Analyst consensus expectations are to increase 1.2% y/y to $17.99 bln (range $17.74 bln to $18.20 bln).

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (FY2016).

  • 2016 full-year earnings guidance is currently $6.53 to $6.68. The Street estimate is $6.61 (range $6.55 to $6.70).
  • 2016 full-year revenue guidance is currently $71.2 bln to $71.9 bln. The Street estimate is $71.76 bln.
  • J&J P/E of 22.4 compares to a 5-year average of 18.6; P/B of 4.7 compares to a 5-year average of 3.4; P/S of 4.9 compares to a 5-year average of 3.4; P/CF of 19.0 compares to a 5-year average of 15.8. Dividend 2.5% compares to a 5-year average of 3.0%.
  • Analysts view J&J with 9 (11 last qtr) Buy, 11 Hold, and 1 Sell rating. (source: MarketBeat.com)
  • J&J insiders sold 16,692 shares over the last three months and sold a net 428,696 shares in the past year. (source: NASDAQ.com) J&J authorized $10 billion in stock buybacks in October 2015 following $5 billion in 2014.
  • 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 1.80%. Options are pricing in an implied move of 1.73% off earnings.

Recent News

  • 07/13: Davenport Value & Income fund manager Mike Beall’s top picks include J&J based on robust earnings based on cash flow metrics, clean balance sheets and above-average yields, according to a post on Barron’s.com.
  • 07/01: J&J loses $70 million verdict after boy developed breasts from taking the antipsychotic drug Risperdal. J&J is facing more than 12,000 claims over the drug, according to a post on Reuters.com.
  • 05/20: Standpoint Research suggests selling J&J citing a 50% (P/E) premium to a competitor group of 5 companies even though J&J’s revenue growth is low single-digits, according to a post on Barron’s.com.
  • 05/19: Wells Fargo sees J&J hitting $127 driven by solid growth, driven by strength of its pharmaceuticals business, recovery in the consumer segment and market stabilization coupled with share gain in Medical Devices & Diagnostics, according to a post on Barron’s.com.
  • 05/13: BTIG downgraded J&J to Neutral from Buy on valuation and the outlook for merger and acquisition activity in the medical device sector, according to a post on Barron’s.com.

Technical Review

Johnson and Johnson made another new all-time high in July 2016 at $123.45 after having shown consolidation for 1.5 years. Point and figure technicians had a bullish price objective of $134 but already increased that to $180. Money flow rotation between J&J and Pfizer appears to have ceased in 2016 as shares have linked up this year. (Chart courtesy of StockCharts.com)

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Summary

While Pfizer and Merck have restructured and narrowed their focus, Johnson & Johnson is nearing a conglomerate status full of consumer products, drugs and medical devices and products. The 12,000 claims that have been filed on the Risperdal drug could get interesting following the most recent jury decision. Analysts tempered their bullishness recently with valuations being somewhat stretched. The company has beaten estimates by an average of 3c the last four quarters with mixed market reactions. Estimize consensus for an adjusted EPS of $1.68 on revenue of $17.876 bln compares to analyst consensus of $1.69 on revenue of $17.99 bln. Any change in guidance would be important.

 

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