JnJ Tops Q3 Analysts Estimate, Raises FY17 Outlook

Chart made from different pills - photo - October 2017The healthcare company Johnson & Johnson (NYSE: JNJ) reported a better-than-anticipated fiscal 2017 third-quarter results that beat analysts’ estimates. The company also raised its full year earnings and revenue estimates. The market reacted positively to the results and pushed the stock price to a high of $142.93. However, we anticipate a correction in the stock price in the week ahead, due to reasons given below.

The New Brunswick-based company reported a 10.3% increase in Q3 2017 revenues to $19.650 billion, from $17.820 billion in Q3 2016. Net earnings for the September quarter fell to $3.764 billion, or $1.37 per share, from $4.272 billion, or $1.53 per share, in the same period last year.

Excluding amortization expense, litigation expenses, acquisition and restructuring charges, among others, net earnings in the recent quarter increased to $5.208 billion, or $1.90 per share, from $4.683 billion, or $1.68 per share, in the corresponding quarter of 2016. The Street estimates for the third-quarter was earnings of $1.80 per share on revenues of $19.28 billion.

Consumer division recorded a 2.9% y-o-y increase in Q3 revenues to $3.356 billion. The Pharmaceutical division reported revenues of $9.695 billion, an increase of 15.4% from $8.40 billion last year. The Medical Devises segment posted revenues of $6.599 billion, up 7.1% on a y-o-y basis.

Actelion, which was acquired by JnJ in June 2017, had a positive impact of 7.9% on the operational sales growth.
The manufacturer of “band-aid” saw an increase in demand for blood cancer drugs such as Darzalex and Imbruvica. The high margin drug portfolio of Actelion is further expected to increase the earnings in the coming quarters. Thus, JnJ raised its full year 2017 revenue and earnings forecast.

The company now expects FY17 non-GAAP earnings in the range of $7.25 to $7.30 per share, compared with $7.12 to $7.22 anticipated earlier. Similarly, JnJ raised its revenue outlook to a range of between $76.1 billion and $76.50 billion, from a range of $75.8 billion to $76.1 billion forecast previously.

Still, we forecast a short-term decline in the stock price due to the following reasons. Firstly, the company continues to face an increase in competition from generic drug companies. That was amply clear from the decline in the sales of Remicade, a rheumatoid arthritis drug. Secondly, the stock trades at a PE ratio of 23.8, while the historic average is only 19.8. Finally, the stock has already reached analysts’ Consensus target price of $143. Thus, in the week ahead, we forecast a downtrend in the stock’s price.

The price chart shows a doji candle formation, which indicates the possibility of a bearish reversal in the price. Furthermore, the RSI indicator is in the overbought region. The stock has also completed the AB=CD formation. Thus, we forecast a short-term decline in the stock price.

Johnson&Johnson - Technical Analysis - 23rd October 2017

We prefer to trade the probable decline by purchasing a put option or its equivalent contract from a binary broker listed here. We will target a strike price of about $143 and choose a date around October 31st for the expiry of the option contract.

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.