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J&J (JNJ) to Set Pharma Q2 Earnings in Motion: What's Up?

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We expect Johnson & Johnson JNJ, a healthcare bellwether, to beat expectations when it reports second-quarter 2018 results on Jul 17, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 2.49%.

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 2.86%

Johnson & Johnson Price and EPS Surprise



Johnson & Johnson Price and EPS Surprise | Johnson & Johnson Quote

The stock has depreciated 9.6% this year so far, which compares unfavorably with a decline of 1.3% recorded by the industry.


Factors to Consider

J&J’s sales improved in the first quarter of 2018. This is because the Pharmaceutical segment continued the positive momentum seen in the second half of 2017 and Consumer segment sales improved. The positive sales trend is expected to continue in the second quarter. In fact, J&J is quite confident that its Pharma segment will continue to perform better than the market this year despite the impact of biosimilars on sales of its key arthritis drug Remicade. Sales in the Consumer and Medical Device segments are expected to improve.

We believe that new products in all segments, successful label expansion of cancer drugs like Imbruvica and Darzalex and contribution from recent acquisitions will continue to drive top-line growth. Core products like Stelara, Zytiga, Simponi/Simponi Aria and Invega Sustenna are expected to contribute to growth.

However, in the past two quarters, revenues from pulmonary arterial hypertension (PAH) products — added after the June 2017 acquisition of Actelion —  declined sequentially due to lower sales of Tracleer outside the United States due to generic competition. It is less likely that PAH revenues will improve in the second quarter

Biosimilar competition is expected to hurt sales of Remicade outside the United States. Please note that J&J markets Remicade in partnership with Merck MRK.

However, J&J does not expect any biosimilar entrants for Zytiga, Prezista, Risperdal Consta, or Invega Sustenna in the United States in 2018. However, the full year guidance includes the impact of generics for Procrit and Tracleer as well as Remicade biosimilars.

Regarding newly launched Tremfya, J&J said on the first-quarter conference call that the uptake of the product has been strong. The drug recorded sales of $72 million in the first quarter, which is expected to be higher in the to-be reported quarter. We expect J&J to discuss initial sales numbers for Erleada, its newly approved prostate cancerdrug, on the second-quarter conference call.

In the Medical Devices segment, sales are expected to rise consistently in the Vision Care and Cardiovascular units. Diabetes Care unit will however continue to remain weak

In the Consumer segment, while beauty and over-the-counter products are expected to do well, domestic baby care product sales will likely remain weak. Recent acquisitions as well as new products are likely to provide some support.

However, higher investments behind the new product launches will continue to hurt profits.

Earnings Whispers

Our proven model shows that J&J is likely to beat estimates this quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.

Zacks ESP: J&J’s Earnings ESP is +0.37%. The Zacks Consensus Estimate stands at $2.06 per share. 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 #3. The combination of J&J’s Zacks Rank #3 and positive ESP makes us confident of an earnings beat in the upcoming release.

Sell-rated stocks (Zacks Rank #4 or 5), on the other hand, should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some other large drug/biotech stocks that also have the right combination of elements to beat on earnings this time around:

Amgen, Inc. AMGN with an Earnings ESP of +1.25% and a Zacks Rank #2. The company is scheduled to release results on Jul 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

AbbVie, Inc. ABBV has an Earnings ESP of +1.14% and a Zacks Rank #2. The company is slated to release results on Jul 27.

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