A key earnings announcement is approaching on July 16 for health-care giant Johnson & Johnson (NYSE:JNJ). You’d think that would be the top headline for the company, right? But unfortunately for people who own JNJ stock, the media is drawing a great deal of attention to talc-based Johnson’s Baby Powder.
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It’s understandable that people would want to debate the health concerns surrounding the Baby Powder product. Investors should consider this issue as it could have a profound impact on the JNJ share price.
However, there are other angles to consider as Johnson & Johnson’s second-quarter earnings announcement draws near. The Covid-19 vaccine angle, for example, is a major factor.
Moreover, the expectations surrounding JNJ stock aren’t particularly optimistic. Some folks would characterize this situation as bearish, but contrarians could view it as a setup for a pleasant earnings-time surprise.
A Closer Look at JNJ Stock
The timing couldn’t be better for an earnings event as JNJ stock just needs a little push to bring it above the $155 level. That’s been a resistance point not once but twice this year.
An earnings surprise would likely provide enough volume and momentum to get JNJ above $155 and keep it there, perhaps even permanently. This situation is similar to 2018, when JNJ bulls tried to push the stock price above $150 twice but were rejected both times.
Not too long ago, the market witnessed just how powerful a concerted effort from the JNJ stock bulls can be. After the novel-coronavirus crisis caused the share price to crater to around $114, the buyers bid JNJ up just as quickly as the panic sellers pushed it down.
But even if there’s an earnings miss on July 16, it’s not the end of the world for JNJ shareholders. History shows that JNJ has earned the title of “safety stock” because of its resiliency and its ability to bounce back with consistency.
Let’s Talk Talcum
There’s no way to avoid the 800-pound elephant in the room, which is the talcum-powder issue. The idea here isn’t to debate its health risks, but rather to raise awareness of how it might impact Johnson & Johnson stakeholders.
Amid ongoing litigation, Johnson & Johnson vowed in May to cease selling talc-based baby powder in the United States and Canada. On the other hand, the company has stated that it intends to continue selling the baby powder in markets outside of North America.
As we might expect, Johnson & Johnson defends this move with a purported scientific basis:
“Decades of independent scientific studies by medical experts around the world support the safety of Johnson’s Baby Powder… We continue to offer this product in many other regions around the world where there is higher consumer demand.”
Yanking the talc-based powder off of the shelves in North America won’t assuage all of the company’s critics. However, it also won’t decimate the company’s revenues. After all, proceeds from Johnson & Johnson’s Baby Powder sales comprise less than 1% of the company’s American consumer-health-sector revenues.
Not Expecting Much – and That’s a Good Thing
If anticipating massive failure is a setup for an earnings blowout, then JNJ stockholders should brace for much higher prices. The analyst community is extra-bearish now as it expects Johnson & Johnson to post quarterly earnings per share of just $1.46.
That would indicate a horrendous year-over-year change of -43.4%. The analysts also project abysmal quarterly revenues of $17.33 billion for Johnson & Johnson. Such a result would suggest a year-over-year decline of 15.7%.
This seems rather harsh when considering that health-care products have been an absolute necessity for many households during the pandemic. Plus, Johnson & Johnson is a prominent contender in the race for a Covid-19 vaccine. In fact, by the end of 2021 the company hopes to produce a billion Covid-19 vaccine doses.
The Bottom Line
It’s entirely possible that the analysts will be proven wrong in their dour assessment of Johnson & Johnson. If so, then the earnings numbers might shock them, but they shouldn’t surprise patient, informed JNJ stockholders.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
The post With Earnings in Sight, Johnson & Johnson Stock Looks Perfectly Healthy appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.