We expect Johnson & Johnson (JNJ) to beat expectations when it reports third quarter 2014 results before the opening bell on Oct 14.
Why a Likely Positive Surprise?
Our proven model shows that Johnson & Johnson is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Johnson & Johnson has an Earnings ESP of +2.11%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.
Zacks Rank: Johnson & Johnson carries a Zacks Rank #3 (Hold) which when combined with a +2.11% ESP makes us confident of an earnings beat.
Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
We believe that Johnson & Johnson is likely to beat earnings in the third quarter based on the strong performance of the pharmaceuticals segment especially products like Xarelto and Zytiga. Other products including Olysio, Invokana, Remicade and Imbruvica are also expected to perform well.
Currency headwinds are expected to dent the company’s earnings. However, we believe the anticipated robust growth in the pharma business will absorb the negative impact of currency headwinds.
Apart from that, early in the third quarter, Johnson & Johnson had completed the divestiture of its Ortho-Clinical Diagnostics (OCD) business to The Carlyle Group for $4 billion. The company plans to buy back shares with the cash proceeds from the transaction. In Jul 2014, the company had announced that its board of directors has approved the repurchase of up to $5 billion of its common stock. Share buybacks will boost the bottom-line further.
Johnson & Johnson’s earnings track record has been pretty good – last quarter, the company delivered a positive earnings surprise of 1.95%. Johnson & Johnson had posted a positive earnings surprise in each of the trailing four-quarters with an average surprise of 1.19%.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows these also have the right combination of elements to post an earnings beat this quarter:
Teva Pharmaceutical Industries Limited (TEVA) has an earnings ESP of +3.31% and carries a Zacks Rank #2 (Buy). It is scheduled to report its third-quarter results on Oct 30.
Pfizer Inc. (PFE) has an earnings ESP of +1.82% and carries a Zacks Rank #3. It is expected to report its third-quarter results on Oct 28.
The earnings ESP for Ligand Pharmaceuticals Inc. (LGND) is +30.00% and it carries a Zacks Rank #1 (Strong Buy). The company is scheduled to release its third-quarter results on Oct 27.
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