With the Q2 earnings season under way, Johnson & Johnson (JNJ - Free Report) is one of the first to report results in the health care space. The world's biggest maker of health care products continued its long streak of earnings and revenue beat. Further, the company lifted its full-year outlook, reflecting confidence in its future growth (read: ETF Strategies for 2H).
Johnson and Johnson Q2 Results in Focus
Earnings per share came in at $1.74, seven cents ahead of the Zacks Consensus Estimate and 1.8% higher than the year-ago earnings. Revenues were up 3.9% year over year to $18.5 billion and edged past the Zacks Consensus Estimate of $17.9 billion.
Healthy sales of new drugs like Darzalex, Invokana, Imbruvica and Xarelto and the strength of established drugs such as Stelara, Remicade, Imbruvica, Simponi and Invega Sustenna partially offset a steep decline in sales of the hepatitis C medicine – Olysio – which lost its competitive position in the U.S. to its rivals Gilead (GILD - Free Report) and AbbVie (ABBV - Free Report) .
Johnson & Johnson raised its guidance for 2016. The company now expects revenues in the range of $71.5–$72.2 billion compared with the previous forecast of $71.2–$71.9 billion. Additionally, the earnings per share guidance has been raised from $6.53–$6.68 to $6.63–$6.73. The Zacks Consensus Estimate is currently pegged at $71.73 billion for revenues and $6.65 for earnings per share.
Despite the earnings beat and encouraging guidance, shares of JNJ gained a nominal 1.7% on the day. This could be an attractive entry point for momentum investors given that Johnson & Johnson has a solid Momentum Style Score of ‘B’. Further, the stock has a favorable Zacks Rank #2 (Buy).
ETFs to Buy
Based on impressive results and solid growth prospects, investors should definitely focus on ETFs that have a double-digit allocation to this diversified drug maker and grab any opportunity from a surge in the JNJ price. For those investors, we have highlighted three ETFs that are poised to outperform following Q2 results and have a top Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook (see: all the Healthcare ETFs here).
Health Care Select Sector SPDR Fund (XLV - Free Report)
The most popular healthcare ETF, XLV follows the Health Care Select Sector Index. This fund manages nearly $13.6 billion in its asset base and trades in heavy volume of around 12 million shares. Expense ratio came in at 0.14% annually. In total, the fund holds 59 securities in its basket with JNJ taking the top spot at 12.2% of assets. Pharma accounts for 39% share from a sector look while biotech, healthcare providers and services, and equipment and supplies make up for a double-digit exposure each.
iShares U.S. Healthcare ETF (IYH - Free Report)
This fund provides exposure to 122 securities by tracking the Dow Jones U.S. Health Care Index. Here again, Johnson & Johnson dominates the fund’s return at 11.7% of total assets. In terms of industrial exposure, pharma takes the top spot at 37.8%, followed by biotech (22.1%), and healthcare equipment (18.5%). The product has amassed nearly $2 billion in its asset base and charges 45 bps in annual fees. It trades in solid volume of around 134,000 shares a day (read: Follow J.P. Morgan with These Sector ETFs).
Vanguard Health Care ETF (VHT - Free Report)
This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 356 stocks in its basket. Out of these, Johnson & Johnson takes the top spot with 10.7% allocation. Pharma takes the largest share at 35.3% while biotech and healthcare equipment round off the top three spots. VHT is also one of the popular and liquid ETFs with AUM of $5.7 billion and average daily volume of about 227,000 shares. It charges 9 bps in annual fees and expenses.
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