J&J (JNJ) to Kickstart Q2 Earnings for the Pharma Sector

We expect Johnson & Johnson JNJ to beat expectations when it reports second-quarter 2020 results on Jul 16, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 13.30%.

The healthcare bellwether’s performance has been pretty impressive, with the company exceeding earnings expectations in each of the trailing four quarters. The company has a four-quarter positive earnings surprise of 6.75%, on average.

 

Johnson Johnson Price and EPS Surprise

 

Johnson Johnson Price and EPS Surprise

 

 

 

 

 

 

 

Johnson Johnson price-eps-surprise | Johnson Johnson Quote

 

J&J’s stock has declined 2.4% this year so far compared with a decrease of 2.2% for the industry.

 

 

 

Factors to Consider

Sales in J&J’s Pharmaceutical segments are expected to have grown above market in the second quarter despite currency headwinds and the impact of biosimilar and generic competition on Remicade and Procrit sales. The increase is expected to have been led by the company’s oncology drugs Imbruvica and Darzalex as well as psoriasis treatment, Stelara.

Meanwhile, incremental COVID-19 demand benefited sales of Imbruvica, Xarelto, Stelara, the PAH portfolio and HIV products in the first quarter. However, a small level of disruption associated with delayed diagnosis and new patient starts is expected to have hurt sales of some drugs in the second quarter.

Sales in J&J’s Medical Devices unit were hurt by widespread decline in elective surgical procedures and redeployment of hospital resources to address patients affected by the pandemic in the first quarter. The negative impact seen in the Medical Devices unit is expected to have been more significant in the second quarter. However, in April, J&J had said that elective procedures will recover in the third quarter and improve in the fourth quarter. An update is expected on the conference call.

In the Consumer Healthcare segment, demand for products like Tylenol analgesics and Listerine mouthwash increased in the first quarter as consumers under lockdown stocked up basic medicines and consumer products. However, J&J expects some of the coronavirus related benefit seen in the Consumer Health segment in the first quarter, mainly its over-the-counter medicines, to reverse over the second and remaining quarters of 2020. We expect Consumer Healthcare segment sales in the second quarter to have been sequentially lower than the first quarter. J&J expects sales in certain categories like skin care to be hurt as a result of reduced store traffic and social distancing in the second quarter.

The Zacks Consensus Estimate for Imbruvica, Darzalex and Stelara is pegged at $1.09 billion, $911 million and $1.79 billion, respectively. Please note that J&J markets Imbruvica in partnership with AbbVie ABBV.

Importantly, investors will also focus on whether J&J provides an updated business outlook for 2020 to update on the impact of coronavirus.

In April, J&J had said that its major regulatory filings and approvals planned for 2020 are on track and no delay is expected for the pandemic. An update is expected on the second-quarter conference call.

J&J is likely to face questions on the call related to a Missouri appeals court decision to overturn a St. Louis jury verdict given in 2018 to pay $4.69 billion in damages to 22 women who claimed that J&J’s talc-based products caused them to develop ovarian cancer. The court, however, reduced the verdict to $2.1 billion arguing that 17 of the 22 plaintiffs were not from Missouri and should not have been included in the verdict. In the first quarter, J&J also announced that it is permanently discontinuing sale of its talc-based Johnson’s Baby Powder in the United States and Canada.

Key Recent Development

In June, J&J said that it is accelerating the timeline for initiation of a phase I/II human clinical study on its vaccine candidate for COVID-19 to the second half of July rather than September as announced earlier. The phase I/II study will be conducted in 1045 healthy adults aged 18 to 55 years, plus adults aged 65 years and older and will be initiated in the United States and Belgium. J&J said that it is holding talks with the National Institutes of Allergy and Infectious Diseases to begin pivotal phase III studies on the candidate sooner than planned if data from the phase I/II study is positive.

J&J’s goal is to supply more than 1 billion doses of the vaccine globally if it proves to be safe and effective.

J&J looks confident of having the first batch of COVID-19 vaccine available for emergency use authorization, on a not-for-profit basis, by early 2021. J&J is committed to invest more than $1 billion in partnership with Biomedical Advanced Research and Development Authority (BARDA) to co-fund vaccine research, development, and clinical testing.

Earnings Whispers

Our proven model predicts an earnings beat for J&J in the soon-to-be-reported quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.

Earnings ESP: J&J’s Earnings ESP is +2.64% as the Zacks Consensus Estimate of $1.46 is lower than the Most Accurate Estimate of $1.50. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: J&J has a Zacks Rank #3.

Other Stocks to Consider

Here are some large drug stocks that have the right combination of elements to beat on earnings this time around:

Sanofi SNY with an Earnings ESP of +4.15% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pfizer PFE has an Earnings ESP of +7.25% and a Zacks Rank #3.

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