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By: Brendan Gilmartin
Johnson & Johnson (JNJ) is slated to report 3Q 2012 earnings before the bell on Tuesday, October 16. 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.

  • The current Street estimate for Adjusted Earnings Per Share is $1.21, down from $1.24 in the year-ago period (Source: Yahoo! Finance).
  • Revenues: Revenues are seen rising 5.80% y/y to $16.93 bln.
  • Adjusted Earnings Per Share (EPS) Guidance: Back in July, J&J adjusted its earnings guidance for full-year 2012 to $5.00 - $5.07 per share, down from $5.05 to $5.17.
  • Adjustments 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 the reduced full-year outlook. Given the recent run-up in the shares, the Street would be less forgiving if J&J reigns in its outlook again.
  • Even in the wake of the recent run-up, J&J shares are yielding 3.58%, 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 Co. (BMY).

Recent News

  • 10/09: According to a post on StreetInsider.com, Goldman Sachs downgraded Johnson & Johnson from Neutral to Sell, based on limited upside at current levels. The firm reportedly believes that much of J&J's growth prospects are reflected in the current valuation and lacks significant pipeline opportunities. The firm also believes that management is spending less focus on returning money to shareholders.
  • 08/14: According to a 13-F Filing, Berkshire Hathaway sold 64% of its stake in Johnson & Johnson.


Technical Review

Johnson & Johnson shares recently touched a 52-week high of $69.75 (as of 8/1/2012), but have since receded to the 50-Day SMA, just above $68.00, due in large part to a broader market retreat and downgrade from Goldman Sachs. From here, the next level of support is $67.00 - a level going back to late June, with downside risk to the 200-Day SMA near $65.00 if J&J were to issue a weak outlook for the remainder of the year. Conversely, resistance is at the aforementioned peak of $69.75. (Chart courtesy of StockCharts.com)

(click to enlarge)

Summary

Johnson & Johnson shares are up more than 10% since mid-June and within 2% of a 52-week high leading up to its 3Q earnings release. An improved consumer spending backdrop in the U.S., a hefty 3.58% dividend payout, relatively cheap valuation, a recent slate of drug approvals, stabilization in Europe, and forex tailwinds are among the factors pushing J&J to its highest level in four years. However, a recent downgrade from Goldman Sachs and nearly 2% pullback over the previous three sessions suggests that J&J shares are vulnerable to even the slightest missteps. While J&J shares tend to move off the guidance figures, it's late enough in the quarter to suggest the company is more apt to stick with its previous outlook for earnings guidance for full-year 2012 of $5.00 - $5.07 per share. Therefore, the Street will focus more heavily on earnings and revenues. Given the run-up, flat to lower figures versus consensus could have negative consequences.

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Source: Johnson & Johnson Slipping Ahead Of Q3 Earnings; Shares At Key Support Level