Johnson & Johnson (NYSE: JNJ) reported mixed fiscal 2017 second-quarter results in the last week of July. While the earnings surpassed estimates, the revenues did not. Thus, the stock of JnJ continues to remain range bound between $130 and $134. On the basis of recent FDA approvals and upwardly revised price targets by analysts, we expect an upswing from Friday’s closing price of $130.98.
The Pharmaceutical and FMCG company recorded a 1.9% increase in revenues to $18.839 billion in 2Q17, from $18.482 billion in the similar quarter of fiscal 2016. The Thomson Reuters revenue estimate was $18.95 billion. For the June quarter 2017, net earnings were $3.827 billion, or $1.40 per share, down 4.3% from $3.997 billion, or $1.43 per share, in the year-ago period.
Excluding litigation and impairment charges, among others, the 2Q17 adjusted earnings were $5.017 billion, or $1.83 per share, compared with $4.866 billion, or $1.74 per share, in 2Q16. The FactSet analysts estimate was $1.79 per share for the second quarter.
JnJ announced that the FDA has approved its new 32mg tablet (Tracleer) for treating paediatric patients with idiopathic or congenital pulmonary arterial hypertension (PAH). The oral administration of the drug can be prescribed for patients aged three years and older. PAH is high blood pressure in the arteries of the lungs. The condition will make it difficult for the flow of blood to the lungs. Thus, it will force the heart of an affected person to work harder. Commercial supply of the drug is expected to begin in the fourth-quarter of 2017. Tracleer is the first FDA approved drug for paediatric PAH patients in the US.
Notably, earlier this year, JnJ acquired the Swiss bio-pharma company Actelion Ltd., for $30 billion. JnJ has about $42 billion in banks outside the US. Repatriating the funds back to the US would result in a huge tax payout. Thus, JnJ has made a wise choice to spend the money outside the US to make acquisitions that would prove profitable in the long run. Tracleer is one of the blockbuster drugs of Actelion. The drug dominates the $5 billion PAH market.
Investment research firm BMO Capital has reiterated its buy rating for JnJ, with a target price of $145. Thus, solid 2Q17 earnings and FDA approval for Tracleer is expected to turn the stock bullish in the short-term.
The price chart below shows the formation of a double bottom pattern. Furthermore, the stochastic indicator is moving upwards. Thus, we can expect an end to the current downtrend in the stock. On the upside, the next resistance exists at 133.
A call option is a better choice to trade the appreciation in the stock’s price. We would choose an option expiring on or around September 16th, and open the trade when the stock trades near $130.40 in the NYSE.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.