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Summary

  • Johnson & Johnson (JNJ) is slated to report 1Q 2014 earnings before the bell on Tuesday, April 15th.
  • Adjusted Earnings Per Share: The current Street estimate is $1.48 (range $1.41 to $1.55).
  • Revenues: Analysts expect an increase of 2.8% y/y to $18.00 bln (range $17.83 bln to $18.32 bln).

By Craig Bowles

Overview

Johnson & Johnson (NYSE:JNJ) is slated to report 1Q 2014 earnings before the bell on Tuesday, April 15th. The earnings release is expected at approximately 7:45 a.m. EST with a conference call to follow at 8:30 a.m. that is webcast through www.investor.jnj.com. A member of the Dow Jones Industrial Average, J&J has significant market influence and the potential to impact the broader market gauges.

Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share & Earnings Per Share Excluding Items: The values for both measures are typically the same and are comparable to consensus estimates. The current Street estimate is $1.48 (range $1.41 to $1.55) (Source: Yahoo! Finance). JNJ has beaten estimates by 4c for three of the last four quarters with the exception being a 9c beat.
  • Revenues: Analysts expect an increase of 2.8% y/y to $18.00 bln (range $17.83 bln to $18.32 bln).
  • Adjusted Earnings Per Share (EPS) Guidance / Earnings Per Share Guidance (FY2014): 2014 full-year earnings guidance of $5.75 - $5.85 per share compares to the current Street estimate of $5.83, reduced from the $5.86 before January's earnings and guidance.
  • Even in the wake of the recent run-up, J&J shares are yielding 2.70%, limiting potential downside. Note that the industry average is 3.2% and J&J's 5-year average is 3.2%, suggesting investors with an appetite for yield may begin turning elsewhere with the shares at these levels.
  • J&J shares bounced back from the brief decline following last quarter's earnings and are above the $85-$95 range of last year's second half. The stock trades at 20.5x trailing earnings, above the 5-year average of 16.7x and industry average of 18.2x.
  • J&J is the first of the major pharmaceutical companies to report quarterly results and could impact the likes of Pfizer (NYSE:PFE), Merck (NYSE:MRK), Abbott Labs (NYSE:ABT), and Bristol Myers Squibb (NYSE:BMY).
  • J&J shares tend to see minimal movement off earnings, with the 1-day average price change on earnings of just 1.26%. Options are pricing in an implied move of 1.71% off earnings.

Recent News

  • 04/07: Medical devices account for 40% of J&J sales, so slightly more than pharmaceuticals where all five franchises are showing accelerating growth, according to a post on TheMotleyFool.com.
  • 04/04: Johnson & Johnson was ordered by a Texas jury to pay $1.2 million to a woman who alleged one of the company's lines of vaginal-mesh implants to treat incontinence was defectively designed, in the first verdict against the company over those devices, according to a post by Bloomberg.com. (Liability issues have been an increasing problem recently as seen with a $3 bln recall of artificial hips before facing liability suits in 2013.)
  • 04/01: Jim Cramer believes Johnson & Johnson's selling its Ortho-Clinical Diagnostics business to The Carlyle Group for $4 billion will lead to a buyback of "a huge amount of stock", according to a post on TheStreet.com. (J&J previously has done a few $10 bln and above buybacks since 2007, so is one of the more aggressive companies in this area.)
  • 03/14: A Philadelphia jury awarded $3 million in the Topamax Birth Defect trial.

Technical Review

J&J shares bounced back from the brief decline following last quarter's earnings and are above the $85-$95 range of last year's second half. The Relative Strength Index (RSI) and MACD could be due for a correction with a support balance between $93.00 and $94.00. The stock has been testing new all-time highs, however. The healthcare sector was relatively strong in Q1 until mid-March, so this recent strength by J&J shares helped catch up with the sector but that's been completed now. (Chart courtesy of StockCharts.com)

Summary

J&J has beaten estimates by 4c for three of the last four quarters with the exception being a 9c beat, so earnings probably need to be around the $1.55 high end of estimates for an upside reaction in the stock. Traders taking advantage of the relative underperformance in early Q1 have been rewarded, so they might be inclined to sell on any news that's mediocre.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.