- Johnson & Johnson stock flat ahead of the Q3 report.
- Q3 earnings and revenue are expected to top estimates.
- Focus on medical devices, consumer health, and pharmaceutical businesses.
Johnson & Johnson (NYSE: JNJ) is scheduled to report its Q3 results before the market opens on October 19, 2021. The pharmaceutical company heads into the earnings session at a time of upheavals in the market. Its stock has pulled back by about 10% from 52-week highs and flat for the year.
The earnings call might as well be the catalyst to cause the stock to re-rate higher going by bullish estimates across the board. Expectations are high that the company will post better-than-expected revenue and earnings growth. However, there is also the risk of the stock continues to move lower on the earnings missing estimates.
Johnson & Johnson is poised to report its Q3 results to the US Food Drugs Administration, having struck a favorable tone regarding its proposed Covid-19 vaccine booster.
Johnson & Johnson Q3 expectations
The healthcare products maker delivered positive second-quarter results-driven mainly by strong sales and earnings across its Medical Device, Consumer Health, and Pharmaceutical business. Initial expectations are that the momentum continued in the third quarter with the US medical industry fully opened following the COVID-19 pandemic.
In the second quarter, Johnson & Johnson posted revenues of $23.2 billion, representing a 27.1% year-over-year increase. Diluted EPS, on the other hand, landed at $2.35, up 72.8% year over year.
Wall Street expects Johnson & Johnson to post quarterly earnings of $2.37a share, representing a 7.7% year-over-year increase. On the other hand, revenue is expected to land at $23.8 billion, representing a 12.8% year-over-year increase.
The stock has edged higher in six of the eight earnings calls on Johnson & Johnson reporting better than expected results. On the day of the earnings, the stock has popped by an average of 1.9% affirming earnings impact on investors’ actions. This time around, the options market is already pricing a 3.7% swing.
What to look out for
When Johnson & Johnson reports, the focus will be on the kind of numbers it posts on the medical devices, consumer health, and pharmaceutical businesses. The opening up of the US economy and the easing of COVID-19 restriction has meant an uptick in medical procedures, most of which were suspended last year as the focus shifted toward addressing the pandemic.
The consumer health segment was on a roll in the second quarter posting a 10% increase in sales. The increase came at the back of increased demand for Johnson & Johnson skin health/beauty products as the market recovered from the covid-19 impacts. It will be interesting to see if the momentum continued in the third quarter, given that the US economy has fully opened and recovered from the COVID-19 shocks and disruptions.
The Pharmaceuticals segment is another important frontier and a key driver of the company’s top line. In the second quarter, the segment posted a 14.1% increase in sales driven by the sale of STELAR, a novel treatment for immune-mediated inflammatory and DARZALEX treatment for multiple myeloma.
This year, the medical devices segment has also been on a roll due to the resumption of medical procedures in the aftermath of the pandemic. The segment posted a 58% increase in revenue in Q2, waiting to see if the momentum continued in the third quarter. The segment continues to benefit from the recovery from COVID-19 impacts and associated resumptions of medical procedures.
Bottom line
At a current valuation of $160 a share, Johnson & Johnson is trading at a forward price to earnings multiple of 15. A 10% pullback from all-time highs means the stock is trading at a discount. Consequently, better than expected Q3 results could strengthen investors’ sentiments on the stock causing it to re-rate higher.
