North America

Earnings Preview: Johnson & Johnson Q3 2016 (JNJ)

By: Craig Bowles

Overview

Johnson & Johnson (JNJ) is slated to report 3Q 2016 earnings before the opening bell on Tuesday, October 18th. 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 $1.65 (range $1.59 to $1.75). (Source: Yahoo! Finance)
  • Revenues: Analyst consensus expectations are to increase 3.6% y/y to $17.71 bln (range $17.52 bln to $17.98 bln).

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

  • 2016 full-year earnings guidance is currently $6.63 to $6.73. The Street estimate is $6.69 (range $6.67 to $6.71).
  • 2016 full-year revenue guidance is currently $71.5 bln to $72.2 bln. The Street estimate is $72.08 bln.
  • J&J P/E of 21.9 compares to a 5-year average of 18.6; P/B of 4.4 compares to a 5-year average of 3.4; P/S of 4.7 compares to a 5-year average of 3.4; P/CF of 18.6 compares to a 5-year average of 15.8. Dividend 2.6% compares to a 5-year average of 3.0%.
  • Analysts view J&J with 10 Buy, 11 Hold, and 1 Sell rating. (source: MarketBeat.com)
  • J&J insiders sold 44,081 shares over the last three months and sold a net 475,277 shares in the past year. (source: NASDAQ.com) J&J authorized $10 billion in stock buybacks in October 2015 and has used about $7 billion. 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 1.76%. Options are pricing in an implied move of 1.80% off earnings.

Recent News

  • 10/04: Alphabet (GOOGL) vows to create “the future of surgery” through its Verb Surgical joint venture with Johnson & Johnson. The Verb’s platform isn’t expected to hit the market until 2020, according to a post on InvestorsDaily.com.
  • 09/20: Abbott Laboratories’ (ABT) Medical Optics business will be sold to Johnson & Johnson for $4.3 billion cash. EPS accretion of less than 5 cents to J&J assuming the purchase closes at the end of first-quarter 2017, according to a post on Barron’s.com.
  • 09/09: Wells Fargo Securities believes Johnson & Johnson can deliver organic growth (excluding biosimilar Remicade) of close to 6% in 2017, similar to 2016 rate, according to a post on Barron’s.com.

Technical Review

Johnson and Johnson made another 2016 new all-time high in July at $126.07 after having shown consolidation the previous year and a half. Point and figure technicians have a bullish price objective of $130, so that has pretty much been reached. 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. The 12,000 claims that have been filed on the Risperdal drug could get interesting following July’s $70 million award on one claim. The company has beaten estimates by an average of 5c the last four quarters with mostly positive market reactions. Estimize consensus for an adjusted EPS of $1.66 on revenue of $17.742 bln compares to analyst consensus of $1.65 on revenue of $17.71 bln. Any change in guidance would be important as it was last quarter’s earnings release.

 

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