Earnings Preview: Healthcare Giant Johnson & Johnson Set To Report Tuesday Morning

Healthcare giant Johnson & Johnson JNJ reports second-quarter earnings before market open on Tuesday, July 17. 

JNJ has been in the headlines lately as it was ordered by a jury last week to pay $4.69 billion in a case related to its talc products. The company has said it plans to appeal the verdict. JNJ has faced a large number of similar suits recently, some of which have been overturned in appeals courts, although this is the largest verdict so far out of all the cases. 

The number of suits related to its talc products has been one area that many analysts have expressed some concerns about. There is a lot of uncertainty regarding the total amount JNJ might end up having to pay across all the different cases, although analysts have noted that the company has the financial strength to cover any damages. 

Johnson & Johnson Earnings

For Q2, JNJ is expected to report adjusted EPS of $2.06 on revenue of $20.37 billion, according to third-party consensus analyst estimates. In the same quarter last year, JNJ reported adjusted EPS of $1.83 on revenue of $18.84 billion. 

When it last reported, revenue in JNJ’s pharmaceutical segment grew the fastest and was up 19.4 percent year over year to $9.8 billion. Within that segment, oncology drugs saw the greatest growth, up 45 percent year over year to $2.3 billion. Analysts have said they are again expecting JNJ’s oncology portfolio to be a large driver of the company’s revenue growth, as some of the drugs have gained additional approvals in 2018. 

Revenue in the company’s other two segments grew at a single-digit pace in Q1. Consumer revenue grew 5.3 percent to $3.4 billion and medical device revenue increased 7.5 percent to $6.77 billion. 

After last quarter’s report, management upped their revenue guidance for all of 2018 to a range of $81 to $81.8 billion, and reiterated their previous guidance for adjusted EPS between $8.00 and $8.20. The company also said it plans to up its R&D spending to $30 billion between 2018 and 2021. 

DOWN IN 2018. So far this year, shares of Johnson & Johnson are down 9.55 percent, as of July 13. The S&P 500 (SPX) is up 3.91 percent over the same period. Since the end of April, JNJ has been trading in a narrower range between $120 and $127.50. Chart source: thinkorswim^® by TD Ameritrade.   Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Options Trading Activity

Options traders have priced in a 2 percent stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 39th percentile as of this morning. 

In short-term trading at the July 20 monthly expiration, activity on the call side has been concentrated at the 125 strike price, with some action at the 126 and 127 strikes as well. Puts have been active at the 125 strike. 

The 130-strike call has also been active at the August 17 and October 19 monthly expirations in recent trading, with volume of 1,805 and 739 contracts, respectively, during Friday’s session. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Next up in Earnings

There are several major companies from different sectors reporting this week. These are some of the other notable earnings reports this week: 

• Goldman Sachs Group Inc. GS before market open Tuesday, July 17
• Morgan Stanley MS reports before market open Wednesday, July 14, and IBM IBM after market close the same day
• Microsoft Corporation MSFT after market close Thursday, July 19 
• General Electric Company GE before market open Friday, July 20

For a look at what else is going on, check out today’s Market Update. 

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.