Johnson & Johnson
) is scheduled to report results for the third quarter of 2013
before the opening bell on Oct 15, 2013.
Last quarter, Johnson & Johnson posted a 5.71% positive
surprise. We expect the company to beat expectations in the third
quarter as well.
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
Positive Zacks ESP
: The Expected Surprise Prediction or ESP (
) which represents the difference between the Most Accurate
estimate and the Zacks Consensus Estimate, is +0.76%. This is
meaningful and a leading indicator of a likely positive earnings
Zacks Rank #3 (Hold)
: Note that stocks with a Zacks Rank #1, #2 and #3 have a
significantly higher chance of beating earnings estimates. We
caution against stocks with Zacks Ranks #4 and #5 (Sell rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revision momentum.
The combination of Johnson & Johnson's Zacks Rank #3
(Hold) and a positive ESP of +0.76% make us confident of an
earnings beat on Oct 15.
What is Driving the Better-than-Expected
We believe the diversity and strength of the company's
underlying businesses will continue to provide solid growth in
future. Johnson & Johnson has delivered positive earnings
surprises in the last four quarters with an average beat of
Johnson & Johnson has been trying to offset the declining
sales of some of its important products by bringing in new
products through in-licensing deals and acquisitions. In 2012,
Johnson & Johnson acquired erstwhile Synthes Inc. to boost
its medical device portfolio. The products of both the companies
should complement each other. Hence, we are positive on the
Synthes deal which is expected to be accretive to earnings.
On the other hand, Remicade, the best-selling drug at Johnson
& Johnson, continues to maintain momentum driven by strong
demand in the rheumatoid arthritis market, as well as significant
unmet need in the Crohn's disease and ulcerative colitis markets.
Remicade generated sales of $3.3 billion in the first half of
2013, up 7.5% year over year.
While we expect the company to continue facing headwinds in
the form of EU pricing pressure, manufacturing issues and U.S.
healthcare reform, we believe Johnson & Johnson's diversified
business model, lack of cyclicality and strong financial position
will enable the company to pave its way through tough
Other Stocks to Consider
Here are some other stocks you may want to consider as our
model shows that these also have the right combination of
elements to post an earnings beat this season:
Eli Lilly and Company
) has Earnings ESP of +4.85% and holds a Zacks Rank #3 (Hold).
Eli Lilly will be reporting third quarter earnings on Oct 23.
) has Earnings ESP of +0.91% and holds a Zacks Rank #2 (Buy).
Biogen will be reporting third quarter earnings on Oct 28.
Merck & Co
) has Earnings ESP of +1.15% and holds a Zacks Rank #3 (Hold).
Merck will be reporting third quarter earnings on Oct 28.
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