Johnson & Johnson (JNJ - Free Report) , a healthcare bellwether, will report fourth-quarter and full year 2018 results on Jan 22, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 0.99%.
J&J’s performance has been pretty impressive, with the company exceeding earnings expectations in all the trailing four quarters. The average positive earnings surprise over the last four quarters is 1.65%
The stock has depreciated 12.7% in the past year compared with a decrease of 0.9% recorded by the industry.
Factors to Consider
J&J’s sales growth has accelerated in the past few quarters backed by continued above market growth in the Pharmaceutical segment and improved organic sales growth in the Medical Devices and the Consumer segments. In fact, J&J raised its full-year organic sales growth expectations thrice in 2018.
J&J’s strong performance in pharmaceuticals segment is being led by its oncology portfolio, a trend expected to remain unchanged in the fourth quarter. Core products like Imbruvica, Darzalex Stelara, Zytiga, Simponi/Simponi Aria and Invega Sustenna should contribute to growth. Though sales of another key drug, Xarelto declined in the third quarter, the situation is expected to improve in this time around. A new 2.5 milligram vascular dose of Xarelto for the CAD/PAD indication was approved by the FDA in October 2018, which significantly expanded the drug’s eligible patient population. This is expected to drive sales of the drug in the fourth quarter and in 2019.
In the pulmonary arterial hypertension (PAH) category, strong demand for Uptravi and Opsumit will be partially offset by an expected decline in Tracleer outside the United States due to generic competition.
Meanwhile, biosimilar competition is expected persist, hurting key arthritis drug Remicade outside the United States. Please note that J&J markets Remicade in partnership with Merck
Regarding newly launched Tremfya, J&J, on its third-quarter call, noted strong demand for the product. The drug captured 5.8% share of the psoriasis market in the United States.We expect the drug to generate higher sales in the fourth quarter than the previous quarters.
On the same call, J&J had said that while the Consumer and Medical Device businesses should continue to improve in the fourth quarter, the Pharmaceuticals segment might see slower growth. The Pharmaceuticals segment is likely to face difficult comparisons in fourth quarter, which coupled with expected biosimilar and generic competition to Tracleer and Procrit in late 2018, may put pressure on the segment’s growth. Though the generic version of Tracleer was not launched in 2018, a biosimilar of Procrit was launched by Pfizer (PFE - Free Report) in November.
The Zacks Consensus Estimate for J&J’s Pharmaceuticals, Consumer and Medical Device segments is $9.87 billion, $3.57 billion and $6.72 billion, respectively.
Higher R&D costs and investments for product launches will continue to hurt profits.
We expect management to be flooded with questions related to how the company plans to come out clean from the recent allegations by a Reuters article, which claimed that the company knew for decades that its baby powders contained asbestos.
J&J is fighting thousands of lawsuits alleging that its talc/baby powders contain asbestos, which causes users to develop ovarian cancer. J&J, in a statement, called the reports by Reuters “one-sided, false, and inflammatory”. J&J said that independent tests by regulators, academic institutions and leading labs have proven that its talc-based products never contained asbestos.
Our proven model does not conclusively show that J&J is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.
Earnings ESP: Its Earnings ESP is 0.00% as both the Most Accurate Estimate as well as the Zacks Consensus Estimate is pegged at $1.95. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: J&J’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.
We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some drug/biotech stocks that have the right combination of elements to beat on earnings this time around:
Ultragenyx Pharmaceutical Inc. (RARE - Free Report) with an Earnings ESP of +28.71% and a Zacks Rank #3. The company is expected to release results on Feb 19. You can see the complete list of today’s Zacks #1 Rank stocks here.
Regeneron Pharmaceuticals, Inc. (REGN - Free Report) has an Earnings ESP of +10.67% and a Zacks Rank #3. The company is expected to release results on Feb 14.
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