Blue-chip consumer goods firm Johnson & Johnson (NYSE:JNJ) will step into the earnings limelight bright and early on Tuesday. Expectations have fluctuated during the past several weeks, with Wall Street remaining skeptical of the company’s long-term prospects.
During the past 90 days, the consensus estimate for JNJ earnings has fallen by a penny per share to stand at $1.53. Revenue is expected to fall 4.3% year-over-year to arrive at $17.3 billion.
Historically, however, JNJ is on firm footing, having bested Wall Street’s targets in every quarter for the past four years.
As such, it should come as no surprise that EarningsWhisper.com reports a higher first-quarter whisper number of $1.54 per share for Johnson & Johnson’s results.
The brokerage community’s optimism ends there, however. According to data from Thomson/First Call, only eight of the 20 analysts following JNJ stock rate the shares a “buy” or better, compared to 11 “hold” ratings and one outright “sell.”
What’s more, the 12-month consensus price target of $110 represents a meager premium of only 8.6% to yesterday’s close at $101.33.
Options traders are also jumping on the bearish bandwagon, as JNJ stock has seen impressive put volume recently, driving the equity’s April/May put/call open interest ratio to a near-term peak of 1.04, with put open interest arriving in parity with put open interest. The front-month April series is also put heavy, with a put/call open interest ratio of 0.98.
Click to Enlarge Overall, April implieds are pricing in a potential post-earnings move of only about 2.35% for JNJ stock, with volatility arriving in line with historical levels. The result is an upper bound of $103.37 and a lower lower bound of $98.63. An upside move would place JNJ just shy of resistance at its 200-day moving average, while a decline could push the stock south of key psychological and technical support at the $100 mark.
2 Trades for JNJ Stock
Call Buy: Price action has been weak for months for JNJ stock, but the shares are now between a rock and a hard place. Technical support should be strong at $100, and JNJ should need to do very little to inspire confidence given the wealth of bearish sentiment levied against the shares.
As such, traders willing to take a chance on a rebound might want to consider buying a May $100 call. At last check, this call was asked at $2.90, or $290 per pair of contracts. Breakeven lies at $102.90.
Put Sell: Alternately, if you’re not comfortable with a bullish JNJ trade, you could look into a put sell position. For instance, an Apr $98.50 put sell stands a good chance of finishing out of the money when these options expire at the end of next week.
At last check, this option was bid at $1.05, or $105 per contract. On the upside, you keep this premium as long as JNJ stock closes above $98.50 when April options expire. On the downside, should JNJ trade below $98.50 ahead of expiration, you could be assigned 100 shares for each put sold at a cost of $98.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
