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J&J (JNJ) May Beat Q2 Earnings: Will the Stock Gain?

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Johnson & Johnson JNJ , a bellwether in the health care sector, will be reporting second quarter results on Jul 19, before the opening bell.

The company’s track record is pretty good with J&J beating earnings estimates in the last four quarters with an average earnings surprise of 2.13%.

Let’s take a look at how things are shaping up for the second quarter of the year.

Will the Pharma Segment Drive Results Again?

J&J’s pharma segment, which performed well in the first quarter, should continue performing well on the back of products like Stelara, Imbruvica, Xarelto, Simponi and Invega Sustenna.

Imbruvica’s label was expanded in early March for the first-line treatment of patients suffering from chronic lymphocytic leukemia. This has expanded the patient population significantly.

Meanwhile, robust market growth and increased penetration with the psoriatic arthritis indication should boost Stelara sales. Investors will also be focused on the performance of the company’s new cancer treatment, Darzalex, which is already off to a good start.

However, Olysio sales will keep declining due to additional competition while Invega will be impacted by generic competition. Moreover, sales of the company’s SGLT2 inhibitor, Invokana/Invokamet, could be affected by the addition of warnings regarding the increased risk of bone fractures, competition and formulary status. Zytiga is also facing increased competition.

J&J continues to assume no biosimilar competition for Procrit or Remicade in the U.S. even though the FDA recently approved a Remicade biosimilar (Inflectra). J&J also does not expect generic competition this year for Zytiga, Risperdal Consta, and Invega Sustenna.

The Medical Device business has also been under pressure with several markets in this segment facing challenges in the form of austerity measures, pricing pressure and a slowdown in elective surgeries, which have all contributed to more tempered growth rates. Soft global market conditions and pricing challenges will continue impacting the performance of this business.

Meanwhile, the consumer business is slowly recovering from the impact of the manufacturing issues that had affected this segment.

The company’s M&A strategy will be a key focus area on the second quarter call. J&J’s share buyback program (worth up to $10 billion) should also boost the bottom-line.

Currency and devaluation in Venezuela will remain headwinds. There will also be some working down of inventory in China where the slowdown in the economy had led to high distributor inventory levels.

What Our Model Indicates

Our proven model shows that J&J is likely to beat estimates this quarter because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.80%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #2 (Buy): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of J&J’s Zacks Rank #2 and +1.80% ESP makes us very confident in looking for a positive earnings beat on Jul 19.

JOHNSON & JOHNS Price and EPS Surprise

JOHNSON & JOHNS Price and EPS Surprise | JOHNSON & JOHNS Quote

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Gilead Sciences Inc. (GILD - Free Report) has an Earnings ESP of +6.91% and carries a Zacks Rank #2. It will be reporting results on Jul 25.

The Earnings ESP for Novartis AG (NVS - Free Report) is +0.85% and it carries a Zacks Rank #3. The company is scheduled to release results on Jul 19.

Eli Lilly and Company (LLY - Free Report) has an Earnings ESP of +2.35% and a a Zacks Rank #3. The company is scheduled to release results on Jul 26.

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