Johnson & Johnson (JNJ - Free Report) will report third-quarter 2019 results on Oct 15, before market open. In the last reported quarter, the company delivered positive earnings surprise of 6.61%.
The healthcare bellwether’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 was 3.02%
J&J’s stock has risen 0.1% this year so far against a decrease of 1.6% recorded by the industry.
Factors to Consider
Currency headwinds and difficult comparisons with the year-ago quarter, the highest sales growth quarter of the year, might have hurt J&J’s third-quarter sales. Also, potentially accelerated generic/biosimilar erosion of Zytiga, Procrit and Tracleer in the United States and Velcade outside the United States, due to generic entry in new markets and additional competitors, might have put pressure on J&J’s Pharmaceutical segment sales. However, its cancer drugs like Imbruvica and Darzalex should continue to perform well backed by market growth and market share gains. J&J markets Imbruvica in partnership with AbbVie (ABBV - Free Report) . J&J’s psoriasis treatment, Stelara should also continue to be a key contributor to sales in the Pharma unit.
The Zacks Consensus Estimate for Imbruvica, Stelara and Darzalex is $917 million, $1.64 billion, $665 million, respectively.
Other core products like Simponi/Simponi Aria and Invega Sustenna and new drugs like immunology medicine Tremfya and prostate cancer drug Erleada should also contribute to growth.
Meanwhile, sales of J&J’s other drugs like Invokana/Invokamet and Xarelto declined in the first half. Xarelto’s sales declined as prescription growth was offset by increased discounts and rebates. We do not see much chances of an improvement in the third quarter in the sales numbers of these drugs.
Sales in J&J’s Medical Devices unit were hurt by some supply disruptions last quarter. It remains to be seen if these issues were resolved and sales improved in the third quarter. In the Consumer Unit, sales improved sequentially in the second quarter, a trend which might have continued in the third quarter.
Meanwhile, potentially higher R&D investments (due to potentially increased investment in the pipeline) and tax rate in the second half of the year are expected to have weighed on the bottom line.
The Zacks Consensus Estimate for J&J’s Pharmaceuticals, Consumer and Medical Device segments is $10.08 billion, $3.52 billion and $6.36 billion, respectively.
On the investor call, management will face questions related to talc and opioid litigation issues
In August 2019, J&J was ordered by a district court in Oklahoma to pay $572 million to the state of Oklahoma in connection with a lawsuit filed by the latter. Last week, J&J settled with two counties of Ohio for $10 million plus other cost reimbursements, in connection with the trial this month under the federal multidistrict litigation related to abuse of its opioid-based drugs— Duragesic, Nucynta and Nucynta ER. All these lawsuits claim that J&J is one of the several companies whose opioid-based drugs were responsible for fueling the state’s opioid epidemic. J&J has decided to appeal against the rulings.
Our proven model does not conclusively show that J&J will 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 the Zacks Consensus Estimate as well as the Most Accurate Estimate is pegged at $2.00. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: J&J has a Zacks Rank of 4 (Sell). We caution Zacks Rank #4 or 5 (Strong Sell) stocks going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some large drug/biotech stocks that have the right combination of elements to beat on earnings this time around:
Lilly (LLY - Free Report) with an Earnings ESP of +1.22% and a Zacks Rank #2. The company is scheduled to release results on Oct 23. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pfizer (PFE - Free Report) has an Earnings ESP of +1.99% and a Zacks Rank #3. The company is scheduled to release results on Oct 29.
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