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J&J earnings: Slow 1Q seen with drug segment challenges

April 18, 2017

Despite its recent, flashy $30 billion deal, Johnson & Johnson is expected to report a slow but steady first quarter, according to Wall Street analysts. The company is scheduled to report Tuesday before the open.

The health-care and consumer products company performed well last year but is facing new challenges in 2017. Pharmaceutical headwinds should “significantly” decelerate the company’s JNJ, +0.58% growth this year, said Wells Fargo analyst Larry Biegelsen.

Wall Street will be closely watching how the sales of Johnson & Johnson’s largest product, the autoimmune disease drug Remicade, have eroded in the face of new competition.

But, at least for now, sales erosion is expected to be moderate, and “there is much to like here,” said Jefferies analyst Jeffrey Holford.

And the company should benefit from a dollar that was weaker than expected, said RBC Capital Markets analyst Glenn Novarro, benefiting the company’s consumer, pharmaceuticals and medical devices segments.

Meanwhile, the company’s $30 billion acquisition of biopharmaceutical company Actelion — which Holford called “an expensive band aid” — is expected to lift earnings results once it closes, likely by the second half of this year and going into 2018.

Here’s what to expect:

Earnings: Analysts expect Johnson & Johnson to report first-quarter earnings of $1.77 per share, up from $1.68 per share in the year-earlier period, according to FactSet. Johnson & Johnson has beat the FactSet consensus in every quarter over the past five years.

The software platform Estimize, which crowdsources estimates from buy-side and sell-side analysts, hedge funds, academics and others, has the company earning more, at $1.79 per share.


Revenue: Analysts expect the company to report revenue of $18.0 billion, up from $17.5 billion in the year-earlier period, according to FactSet. Johnson & Johnson missed FactSet expectations last quarter, and beat them in the prior two quarters.

Estimize has Johnson & Johnson earning the same, or $18.0 billion.


Stock reaction: Shares of Johnson & Johnson have risen 9.3% over the past three months, compared with a 3.2% rise in the S&P 500 SPX, +0.86%

The company’s stock price will likely be driven by the market’s taste for defensive versus offensive investment, growth of the Actelion business and reinvestment of its profits, clinical data results and competition for the company’s pharmaceutical portfolio, said J.P. Morgan analyst Michael Weinstein.

Johnson & Johnson’s average rating is overweight, with a $127.32 price target, according to a FactSet poll of Wall Street analysts. (Johnson & Johnson was valued at $125.53 as of Monday morning).

What to watch for: After years of fending off generic competition for its ADHD medication Concerta, Johnson & Johnson began to face generic competition from Mylan MYL, -0.32%  late last year.

Several of its drugs, including blood clot treatment Xarelto and plaque psoriasis medication Stelara, should face slowing growth, in contrast with stronger growth from cancer drugs Darzalex and Imbruvica, said Wells Fargo’s Biegelsen.

Wall Street will also be watching how much the company’s recent mergers and acquisitions have paid off, including the $4.3 billion purchase of Abbott Medical Optics and the $3.3 billion purchase of hair and personal care company Vogue International.

Competition for Remicade should be mitigated, since the drug’s rival can’t be swapped interchangeably at the pharmacy and Johnson & Johnson has leveraged its relationships with doctors and through discounting, Weinstein said.

“We expect Remicade will be a bigger headwind in 2018, as biosimilar competition gains momentum and Merck/Samsung MRK, +0.30%  Bioepis gain FDA approval for its products later this year,” he said.


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