We expect Johnson & Johnson JNJ to beat expectations when it reports fourth-quarter 2019 results on Jan 22, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 6%.
The healthcare bellwether’s performance has been pretty impressive, with the company exceeding earnings expectations in all the trailing four quarters. The company has a four-quarter positive earnings surprise of 4.27%, on average.
Johnson & Johnson Price and EPS Surprise
Johnson & Johnson price-eps-surprise | Johnson & Johnson Quote
J&J’s stock has risen 13.4% in the past year, compared to an increase of 14.3% for the industry.
Factors to Consider
J&J’s Pharma segment has been putting up an above-market performance despite currency headwinds and the impact of biosimilar and generic competition on sales of some key drugs like Zytiga, Remicade, Procrit/Eprex. Please note that J&J markets Remicade in partnership with Merck MRK. The positive trend is expected to have continued in the fourth quarter.
J&J’s oncology drugs, Imbruvica and Darzalex as well as psoriasis treatment, Stelara are likely to have driven sales growth in the fourth quarter. The FDA granted approval to Stelara for a new indication — moderately-to-severely active ulcerative colitis in October 2019, which is likely to have contributed to the drug’s sales in the fourth quarter. The Zacks Consensus Estimate for Imbruvica, Darzalex and Stelara is pegged at $895 million, $769 million and $1.71 billion, respectively
Other core products like Simponi/Simponi Aria and Invega Sustenna and new drugs like immunology medicine Tremfya and prostate cancer drug Erleada are also likely to have contributed to growth. However, generic/biosimilar headwinds might reflect on the Pharma unit’s sales.
Meanwhile, sales of J&J’s some other drugs like Invokana/Invokamet and Xarelto were soft in the three quarters reported so far. Xarelto’s sales declined as prescription growth was offset by increased discounts and rebates. We do not expect much improvement in fourth- quarter sales of these drugs
Sales in J&J’s Medical Devices unit improved in the third quarter. In the Consumer Unit, sales declined sequentially as growth in beauty and over-the-counter products due to innovation was offset by lower baby care products due to prior year re-launch activities. It remains to be seen if third-quarter Consumer unit sales have improved.
The Zacks Consensus Estimate for J&J’s Pharmaceuticals, Consumer and Medical Device segments is $10.47 billion, $3.59 billion and $6.75 billion, respectively.
On the third-quarter conference call, J&J had said that R&D costs could be higher in the fourth quarter due to potentially increased investment in the pipeline. Moreover, fourth-quarter 2018 earnings had benefited from $800 million of adjusted other income primarily due to the LifeScan divestiture which was missing in the fourth quarter of 2019.
On the investor call, management is likely to face questions about talc and opioid litigation issues.
J&J faces more than 16,000 lawsuits for its talc-based products, primarily its baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer
In early October, J&J announced a voluntary recall of one lot of its Johnson’s Baby Powder. The recall was initiated following tests done by the FDA, which revealed traces of asbestos in samples from one bottle purchased online. In early December, J&J announced that a total of 155 tests were conducted by two different third-party labs on the same bottle of Johnson’s Baby Powder that was previously tested by the FDA. The tests found no asbestos.
J&J also faces thousands of other lawsuits related to abuse of its opioid-based drugs. These lawsuits claim that J&J is one of the several companies whose opioid-based drugs were responsible for fueling the state’s opioid epidemic.
Our proven model shows that J&J is likely to beat estimates this 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: Earnings ESP, which represents the difference between the Most Accurate Estimate of $1.88 and the Zacks Consensus Estimate of $1.87, is +0.77%. 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 #2.
Other Stocks to Consider
Here are some other large drug/biotech stocks that have the right combination of elements to beat on earnings this time around:
Regeneron Pharmaceuticals REGN with an Earnings ESP of +2.20% and a Zacks Rank #3. The company is scheduled to release results on Feb 6. You can see the complete list of today’s Zacks #1 Rank stocks here.
Novartis NVS has an Earnings ESP of +4.35% and a Zacks Rank #3. The company is scheduled to release results on Jan 29.
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