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Earnings Scorecard: J&J

Zacks Equity Research

Following the release of third quarter 2012 results, most of the analysts providing estimates for Johnson & Johnson (JNJ) have raised their earnings estimates for 2012. The revision in estimates mainly reflects the guidance provided by the company.

Third Quarter 2012 Recap

Johnson & Johnson’s third quarter 2012 results exceeded expectations with earnings (excluding special items) coming in at $1.25 per share, 5 cents above the Zacks Consensus Estimate and 0.8% above the year-ago earnings of $1.24 per share.

Despite the negative impact of currency fluctuation, Johnson & Johnson recorded growth on the back of strong product sales.

Revenues increased 6.5% year-over-year to $17.1 billion, beating the Zacks Consensus Estimate of $16.9 billion. While operational factors favorably impacted sales by 10.8%, currency fluctuations had a negative impact of 4.3%. Results included the impact of the recently completed Synthes acquisition, which contributed 5.8% to global operational sales growth.

The Pharmaceutical segment put in a strong performance with sales increasing 7.0% year-over-year to $6.4 billion (operational growth of 11.3% and negative currency impact of 4.3%). Recently launched products like Zytiga, Incivo, Stelara, Xarelto, Simponi and Invega Sustenna continued to perform well. Johnson & Johnson also recorded incremental sales due to the amendment of its distribution agreement with Merck (MRK) for Remicade. Other growth drivers include Prezista as well as Velcade.

(Read our detailed earnings report at: J&J Beats on Higher Revenues).

Agreement of Analysts

Estimate revisions for 2012 indicate a significant positive bias. 14 of the 18 analysts providing estimates have raised their estimates for 2012 following the release of third quarter results with no analyst moving in the opposite direction.

Meanwhile, the estimate revisions for 2013 also show a similar trend with 11 of the 21 analysts providing estimates raising their estimates with just 2 analysts moving in the opposite direction.

Over the last 7 days, there have been no estimate revisions for 2012 and 2013.

The upward revision in estimates reflects Johnson & Johnson’s strong performance in the third quarter and raised outlook for 2012. Following the release of third quarter results, Johnson & Johnson upped its earnings outlook for 2012 to $5.05 - $5.10 in 2012 (old guidance: $5.00 - $5.07 per share).

Magnitude – Consensus Estimate Trend

With the significant positive bias in estimate revisions, estimates for both 2012 and 2013 have gone up by a few cents. While 2012 estimates are up by 3 cents, 2013 estimates have been raised 2 cents.

The Zacks Consensus Estimate for 2012 and 2013 now stands at $5.09 and $5.48 per share, respectively.

Neutral on Johnson & Johnson

We currently have a Neutral recommendation on Johnson & Johnson. The stock carries a Zacks #2 Rank (Buy rating) in the short run. Even though we expect Johnson & Johnson to continue facing headwinds in the form of EU and Japan pricing pressure and manufacturing issues, we believe Johnson & Johnson’s diversified business model, lack of cyclicality, and strong financial position will continue helping Johnson & Johnson pave its way through tough situations.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/

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