By: Brendan Gilmartin
Johnson & Johnson (JNJ) is slated to report 4Q 2012 earnings before the bell on Tuesday, January 22. The earnings release is expected at approximately 7:45 a.m. EST with a conference call to follow at 8:30 a.m. A member of the Dow Jones Industrial Average, J&J has significant market influence and the potential to impact the broader market gauges. Also note that no other major companies report at the same time as J&J, making the trade signal relatively clear.
Outliers & Strategy
- Adjusted Earnings Per Share is forecast to come in at $1.17 (Source: Yahoo! Finance).
- Revenues: Revenues are seen rising 8.7% y/y to $17.67 bln.
- Earnings Per Share Guidance (FY2012 & FY2013). Back in October, J&J adjusted its earnings guidance for full-year 2012 to $5.05 - $5.10 per share.
- The guidance for 2013 could also impact the direction of the market. The current Street estimate is $5.49, up from the estimated $5.09 for fiscal 2012.
Weak results relative to this outlook could have a profound impact on the index futures and the underlying shares.
Last quarter, J&J initially moved lower in reaction to a tighter full-year outlook. Given the recent run-up in the shares, the Street would be less forgiving if J&J offers up a tepid outlook for 2013.
Even in the wake of the recent run-up, J&J shares are yielding 3.33%, putting a potential floor in the shares.
Johnson & Johnson 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).
01/04: Deutsche Bank upgraded J&J to a Buy rating and boosted the price target from $75 to $82, based on improving trends, according to StreetInsider.com. The firm believes that new drugs will lift pharmaceutical sales, while a more diversified product portfolio should support sales.
01/02: J&J declared a cash dividend for the first quarter of 2013 of $0.61 per share on the common stock.
11/20: Stifel Nicolaus started coverage on Johnson & Johnson with a Hold rating according to a post on Benzinga.com. The firm calls J&J a "core" healthcare holding.
11/12: Jefferies cut J&J from Buy to Hold, according to a post on Barron's Online. The report cited increasing competition and lower reimbursement rates in the U.S., resulting from tightening budgets.
J&J shares have been breaking out since the start of the year, rising 5%, en route to a multi-year high ahead of Tuesday's earnings release. Given the recent advance, the Relative Strength Index (RSI) is now hovering well above 70 - a level consistent with overbought conditions. Should the shares fade on earnings, look for support at $72.00, followed by $71.50, with downside risk to the 50-day SMA near $70.50. (Chart courtesy of StockCharts.com)
J&J shares have been breaking out in recent weeks, touching a multi-year high, thanks in part to a series of new treatments in the pharmaceutical space, an attractive dividend yield, share repurchases, a stronger product portfolio, and valuation, with the shares fetching just 13.4x next year's earnings. Given the recent strength, the Street will focus on the outlook for 2013. Expectations are high for this year and any missteps could weigh heavily on the market.
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