North America

Earnings Preview: Johnson & Johnson Q4 2016 (JNJ)

By: Craig Bowles

Overview

Johnson & Johnson (JNJ) is slated to report 4Q 2016 earnings before the opening bell on Tuesday, January 24th. 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 $1.56 (range $1.54 to $1.62). (Source: Yahoo! Finance)
  • Revenues: Analyst consensus expectations are to increase 2.5% y/y to $18.26 bln (range $17.75 bln to $18.56 bln).

Adjusted Earnings Per Share (EPS) Guidance / Revenue Guidance (FY2017).

  • 2017 full-year earnings guidance: The Street estimate is $7.13 (range $7.00 to $7.29).
  • 2017 full-year revenue guidance: The Street estimate is $75.13 bln (range $73.46 bln to $76.81 bln).
  • J&J P/E of 20.2 compares to a 5-year average of 19.8; P/B of 4.3 compares to a 5-year average of 3.7; P/S of 4.5 compares to a 5-year average of 3.8; P/CF of 19.0 compares to a 5-year average of 16.4. Dividend 2.7% compares to a 5-year average of 2.9%.
  • Analysts view J&J with 8 Buy, 11 Hold, and 1 Sell rating. (source: MarketBeat.com)
  • 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 1.82%. Options are pricing in an implied move of 1.83% off earnings.

Recent News

  • 01/11: Johnson & Johnson has tentatively agreed with Actelion (ALIOY) on a price and talks are now focused on valuing what would be a new unit that would house the research and development assets, according to a post on Bloomberg.com.
  • 01/10: J&J CEO Alex Gorsky suggested that tax reform and repatriation could be a major game changer for the company, according to a post on TheStreet.com.
  • 12/22: Johnson & Johnson and Actelion confirmed they are back in discussions regarding a potential strategic deal which Wells Fargo Securities values at potentially a $32 billion transaction, according to a post on Barron’s.com.
  • 12/10: Johnson & Johnson shares could rally about 20% as operating improvements spur earnings growth and deserves more respect from Wall Street, according to a post on Barron’s.com.

Technical Review

Johnson and Johnson made an all-time high in July at $126.07 before pulling back and has traded around the 200-day moving average since. Point and figure technicians have a bearish price objective of $99. 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

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. J&J has $40 bln in cash but that could change dramatically with a $28-32 billion Actelion purchase. 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 $1.58 on revenue of $18.226 bln compares to analyst consensus of $1.56 on revenue of $18.26 bln. Our first look at 2017 guidance will be of interest.

 

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