$JNJ Analyst Blog


Will Pharmaceutical Sales Drive J&J (JNJ) Earnings Again? – Analyst Blog

The first quarter season for the health care sector is round the corner with Johnson & Johnson JNJ, one of the most well-known names in the overall health care sector specially the pharma, consumer health care and medical devices segments, reporting results on Apr 14, before the opening bell.

J&J’s track record has been pretty good over the past few quarters with the company beating earnings estimates all throughout 2014. The average earnings surprise over the last four quarters is 4.8%.

Let’s have a look at how things are shaping up for the first quarter results.

Will Pharma Sales Offset Currency Impact?

Will pharma product sales and newly launched products, which have been driving the company’s performance in the last few quarters, continue to be the driving force in the first quarter?

While the pharma segment is facing challenges in the form of increased competition for hepatitis C virus treatment Olysio and biosimilar competition for Remicade in major EU markets in the form of Hospira’s HSP Inflectra, products like Stelara, Xarelto, Imbruvica and Invega Sustenna should continue performing well.

Investors will also keep an eye on Invokana and Zytiga’s performance – Zytiga saw its market share slip a couple of points on a sequential basis in the fourth quarter due to increased competition.

Turning to the Worldwide Medical Devices segment, several markets in this segment have been facing challenges in the form of austerity measures, pricing pressure and a slowdown in elective surgeries, which have all contributed to more tempered growth rates. However, there has been a modest improvement in hospital utilization rates which should continue improving as economies recover.

As far as the Consumer Care segment is concerned, focus will remain on the restoring and re-launch of U.S. OTC products.

Apart from first quarter results, investor focus will be on the company’s pipeline especially the status of late-stage candidates, outlook for the remainder of the year including the impact of currency movement, expected generic competition and plans for utilization of cash.

What Our Model Indicates

Our proven model shows that J&J is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.66%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks #3 Rank (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of J&J’s Zacks Rank # 3 and 0.66% ESP makes us very confident in looking for a positive earnings beat on Apr 14.

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

ImmunoGen, Inc. IMGN has an Earnings ESP of +32% and carries a Zacks Rank #3. It is scheduled to report results on Apr 24.

The Earnings ESP for Biogen BIIB is +0.26% and it carries a Zacks Rank #1 (Strong Buy). The company is also scheduled to release results on Apr 24.



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