Healthcare giant Johnson & Johnson (NYSE:JNJ) is scheduled to release earnings on Tuesday, April 14, and with shares trailing the S&P 500 by more than 10 percentage points over the last year, investors need a big win.
Unfortunately though, a big win for JNJ doesn’t seem likely.
On the one hand, Johnson & Johnson is a very reliable company that will still be operating 10 years from now, and its 2.7% dividend isn’t in much danger.
But JNJ is a very slow-moving, slow-growing company that isn’t going to shock the market with much higher than expected numbers. In the past four quarters, the biggest surprise was a mere 7% higher than the consensus estimate.
JNJ Stock Q1 Earnings Preview
For this quarter, analysts are estimating JNJ to post revenue of $17.3 billion and earnings per share of $1.54. These figures are lower than the $18.1 billion in sales and EPS of $1.54 reported in the same quarter last year.
JNJ has been struggling with its medical devices sales and the consumer side of its business, which is likely one reason for the lower expected revenue. But, JNJ will also be facing much higher currency headwinds in 2015 than it had in 2014. With the dollar being as strong as it is when compared to other currencies, it will make Johnson & Johnson’s products seem more expensive than local competition.
Investors need to take note of how much currency swings affect Johnson & Johnson’s business because it may be a continued issue moving forward and these headwinds take time to play out before the full effect is realized.
In 2013, Johnson & Johnson had severe problems with quality control. JNJ was forced to recall products and was subjected to FDA investigations because of issues with blood glucose-meters, Tylenol, K-Y Jelly, artificial hips and a number of other products. As a shareholder, I spent most of that year waiting for the other shoe to drop. And while JNJ stock never tanked, it failed to significantly outperform the S&P 500 that year.
And despite JNJ not having a major scandal for some time now, I still feel something bad is about to happen. Maybe it will be a large lawsuit pertaining to one of the problem products, maybe a massive fine from the FDA, maybe just another big quality control issue. Regardless, JNJ is supposed to be a worry-free stock in my portfolio, and the past two years have been anything but worry-free.
In this earnings report, we still need see what management is doing to ensure we don’t have another 2013 anytime soon. Yes, 2013 is now more than a year away, but companies like this can be quick to forget their past mistakes. As a shareholder, I want to see a firm plan from management that assures me those mistakes won’t happen again.
Final Thoughts
Investors should expect JNJ to miss on EPS this quarter as the currency headwinds worsened since managements last forecast. While I don’t believe JNJ will have a terrible 2015, unless the market experiences a major pullback in the coming months, it’s hard to see JNJ topping the S&P 500 in 2015.
So if you’re holding JNJ stock for price appreciation, it might be time to consider selling.
As of this writing, Matt Thalman was long Johnson & Johnson. Follow him on Twitter@mthalman5513.
