Following the release of encouraging second quarter 2011 results, majority of the analysts covering Johnson & Johnson (JNJ) revised their earnings estimates upwards for 2011. Most analysts have revised their earnings estimates upwards for 2012 as well.
Second Quarter Recap
Johnson & Johnson posted second-quarter 2011 earnings (excluding special items) of $1.28 per share, $0.04 above the Zacks Consensus Estimate and 5.8% above the previous year's $1.21. The company beat expectations despite setbacks from product recalls.
Johnson & Johnson’s revenues for the reported quarter increased 8.3% year-over-year to $16.6 billion. Revenues exceeded the Zacks Consensus Estimate of $16.2 billion. Operational factors and foreign exchange movement favorably impacted sales by 2.6% and 5.7%, respectively.
(Read our detailed earnings report at: J&J Beats, Maintains Outlook).
Agreement of Analysts
Following the release of second quarter results, estimate revision trends among the analysts depict a clear positive bias for the company’s fiscal 2011 and fiscal 2012 earnings. Over the last 30 days, 11 analysts covering the stock have made upward revisions for fiscal 2011, with 3 moving in the opposite direction.
The upward bias is visible in the earnings estimate revisions for fiscal 2012 as well. Over the last 30 days, 8 analysts covering the stock have made upward revisions with 5 moving in the opposite direction.
We believe that the encouraging second quarter results, where Johnson & Johnson beat expectations and maintained its 2011 guidance, is primarily responsible for the upward bias. We believe that the positive bias is also attributable to other factors such as the promising deals signed by Johnson & Johnson, encouraging performance of newly launched products and the deep pipeline.
Moreover, Johnson & Johnson’s strategy of increasing its presence in the high potential emerging markets should also contribute to growth. Given the huge potential, the company has set up manufacturing and research & development centers in Brazil, China and India.
Magnitude of Estimate Revisions
The earnings estimate for fiscal 2011 has remained static over the last 30 days. Given the directional pressure from the positive revisions, earnings estimate for fiscal 2012 has gone up by $0.01 over the last 30 days. The current Zacks Consensus Estimates for fiscal 2011 and 2012 are $4.96 and $5.29, respectively.
Neutral on Johnson & Johnson
We currently have a Neutral recommendation on Johnson & Johnson. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Even though Johnson & Johnson has been facing challenges in the form of OTC product recalls, pricing austerity in the EU and generic competition, we believe that the company’s diversified business model, lack of cyclicality and strong financial position should help in tough situations.
Other catalysts could be regulatory approval of a couple of important pipeline candidates. We are also pleased with the settlement of the company’s dispute with Merck (MRK) regarding the ex-US distribution rights of Remicade (infliximab) and Simponi (golimumab).
The amended deal has made Johnson & Johnson solely responsible for marketing Remicade and Simponi in markets such as Canada, Central and South America, the Middle East, Africa and Asia Pacific from July 1, 2011.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, 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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