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Healthcare ETFs in Focus on Johnson & Johnson Q3 Earnings

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Earnings and Revenue Beat


Shares of Johnson & Johnson (JNJ - Free Report) increased 3.5% at market close on Oct 17, 2017 after beating the Zacks Consensus Estimate on both earnings and revenues. The company’s revenues of $19.7 billion increased 10.3% in third-quarter 2017 on a year-over-year basis and 4.5% on a sequential basis. It came ahead of the consensus mark of $19.28 billion.


Increase in sales was driven primarily by strong sales of cancer drugs and recent acquisition activity. Earlier this year in June, JNJ in its biggest ever acquisition  bought Swiss biopharmaceutical company Actelion for $30 billion.


Johnson & Johnson reported non-GAAP earnings per share (EPS) of $1.9 for third-quarter 2017, up 13.1% year over year and 3.8% on a sequential basis. It beat the Zacks Consensus Estimate of $1.8.


Segment Sales and Outlook


The company reported increase in sales by geographical segments. U.S. sales increased 9.7% to $10.3 billion from $9.4 billion, while International sales increased 10.9% to $ 9.4 billion from $8.4 billion.


Moreover, on a business-segment basis, the company reported improvements in all the three segments. Consumer, Pharmaceutical and Medical devices revenues increased 2.9%, 15.4% and 7.1% respectively.


The company increased its revenue guidance for full-year 2017 to the range of $76.1-$76.5 billion and updated its adjusted EPS guidance to $7.25-$7.30.


Industry Factors


In a latest executive order, Trump aimed at scrapping a key component of Obamacare. The President said that he wanted to end subsidies to insurers that cost $7 billion this year and help millions of low-income Americans pay medical expenses. Moreover, Trump took a dig at drug pricing and accused companies of getting away with murder by charging sky high drug prices.


The uncertainty was reduced to some extent as news of the two political parties coming to a bipartisan deal started doing the rounds. Senators of both parties said they reached a deal to stabilize Obamacare for the short term and allow insurer subsidies. However, changes in the deal might be in the cards as it has to be passed by the Congress and signed by Trump first.


In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to Johnson and Johnson (see all Health Care ETFs here).


Health Care Select Sector SPDR Fund (XLV - Free Report)


This fund seeks to provide exposure to healthcare stocks and tracks the Health Care Select Sector Index. It has AUM of $17.5 billion and charges a moderate fee of 14 basis points a year (read: Should You Keep Your Portfolio Healthy with Biotech ETFs?).


From a sector look, the fund has high exposure to Pharmaceuticals, Biotech and Health Care Providers & Services, with 33.6%, 21.9% and 19.1% exposure, respectively (as of Sep 30, 2017). The fund’s top three holdings are Johnson & Johnson (JNJ - Free Report) , Pfizer (PFE - Free Report) and Unitedhealth (UNH - Free Report) with 11.8%, 6.8% and 6.2% allocation, respectively (as of Oct 17, 2017).  The fund has returned 19.5% in a year and 20.6% year to date (as of Oct 17, 2017). XLV currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.


Vanguard Healthcare ETF (VHT - Free Report)


This fund seeks to provide exposure to healthcare stocks and tracks the MSCI US Investable Market Health Care 25/50 Index. It has AUM of $7.1 billion and charges a moderate fee of 10 basis points a year.


From a sector look, the fund has high exposure to Pharmaceuticals, Biotech and Health Care Equipment, with 30.5%, 24.6% and 17.9% exposure, respectively (as of Sep 30, 2017). The fund’s top three holdings are Johnson & Johnson, Pfizer and Unitedhealth with 9.6%, 5.9% and 5.2% allocation, respectively (as of Sep 30, 2017).  The fund has returned 21.0% in a year and 22.0% year to date (as of Oct 17, 2017). VHT currently has a Zacks ETF Rank #2 with a Medium risk outlook.


iShares U.S. Healthcare ETF (IYH - Free Report)


This fund seeks to provide exposure to healthcare stocks and tracks the Dow Jones U.S. Health Care Index. It has AUM of $2.1 billion and charges a moderate fee of 44 basis points a year.


From a sector look, the fund has high exposure to Pharmaceuticals, Biotech and Health Care Equipment, with 33.7%, 24.5% and 18.8% exposure, respectively (as of Oct 16, 2017). The fund’s top three holdings are Johnson & Johnson, Pfizer and Unitedhealth with 11.1%, 6.5% and 5.7% allocation, respectively (as of Oct 16, 2017).  The fund has returned 20.9% in a year and 21.3% year to date (as of Oct 17, 2017). IYH currently has a Zacks ETF Rank #2 with a Medium risk outlook.


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