The Q4 earnings season has kick started and Johnson & Johnson (JNJ - Free Report) is the first to have reported earnings in the health care world. The world's biggest maker of health care products continued its long streak of earnings beat but missed on revenues hit by currency headwinds (read: Favorite Sectors of Q4 and Their Rewarding ETFs).
Johnson and Johnson Q4 Results in Focus
Earnings per share came in at $1.27, a couple of cents above the Zacks Consensus Estimate and 2.4% better than the year-ago earnings. Revenues slid 0.6% year over year to $18.3 billion, and fell shy of the Zacks Consensus Estimate of $18.5 billion. Strong dollar and stiff competition weighed on top-line growth in the last quarter. International sales declined 6.7% while domestic sales rose 7.4%.
Notably, sales of the blockbuster hepatitis C medicine – Olysio – plunged 59.7% from Q3. This is because the new prescription, Harvoni, combining two drugs in one pill offered by Gilead (GILD - Free Report) has eroded its strong competitive position in hepatitis C treatment.
The currency headwind would remain a major drag on international revenue growth this year. Despite this, the company expects earnings per share in the range of $6.12–$6.27, the midpoint of which is above the Zacks Consensus Estimate of $6.12.
Shares of JNJ dropped as much as 3.6% on the day on elevated volume of about 2.5 times the normal average daily trade. However, the stock recovered slightly at the close, at down 2.6%.
ETFs in Focus
The mixed result has put health care ETFs in focus for the coming days, especially the products having the largest allocation to this health care behemoth. Investors should closely monitor the movement in these funds and could catch the opportunity from any surge in the JNJ price or avoid these if the stock drags them down (see: all the Healthcare ETFs here).
Health Care Select Sector SPDR Fund ((XLV - Free Report) )
The most popular health care ETF, XLV follows the S&P Health Care Select Sector Index. This fund manages about $12.9 billion in its asset base and trades in heavy volume of more than 9 million shares. Expense ratio came in at 0.16% annually. In total, the fund holds 57 securities in its basket with JNJ taking the top spot at 10.85% of the assets.
Pharma accounts for 44.2% share from a sector look while biotech, health care providers and services, and equipment and suppliers make up for double-digit exposure. The fund gained about 2.9% in the year-to-date time frame and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook.
iShares U.S. Healthcare ETF ((IYH - Free Report) )
This fund provides exposure to 115 securities by tracking the Dow Jones U.S. Health Care Index. Here again, Johnson & Johnson dominates the fund’s return at 10.06% of total assets. In terms of industrial exposure, pharma takes the top spot at 42.1%, followed by biotech (22.6%), medical equipment (16.6%) and health care services (14.6%).
The product has amassed nearly $2.0 billion in its asset base while charges 43 bps in annual fees. It trades in good volume of about 380,000 shares a day, suggesting a relatively tight bid/ask spread. IYH is up about 3.2% year to date and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
Vanguard Health Care ETF ((VHT - Free Report) )
This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 326 stocks in its basket. Out of these, Johnson & Johnson occupies the top position at 9.4%. Pharma takes the largest share at 38.2% while biotech and health care equipment round off the top three spots (read: Top Ranked Healthcare ETFs in Focus).
VHT is also one of the popular and liquid ETFs with AUM of $4.5 billion and average daily volume of 297,000 shares. It charges 12 bps in annual fees and expenses. The product has added 2.9% so far this year and has a Zacks ETF Rank of 2 with a Medium risk outlook.
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