Johnson & Johnson (JNJ) stock has struggled alongside the broader market recently, and stockholders will be looking for something to crow about next Tuesday. While JNJ stock is not known for making big moves, there are still opportunities for options traders heading into Johnson & Johnson’s earnings report.
By the numbers, Johnson & Johnson is expected to post a profit of $1.42 per share, up 3.6% from the same quarter last year. Revenue is expected to fall 2% from year-ago levels to roughly $17.9 billion.
Whispers on Wall Street may have set expectations a bit higher, however, with the whisper number for JNJ earnings set at $1.44 per share. This should come as no surprise to JNJ stockholders — the company has bested Wall Street’s targets in every quarter for the past four years.
Additionally, Johnson & Johnson recently announced it is cutting about 3,000 jobs in its medical device unit as part of a restructuring plan. JNJ plans to save $800 million to $1 billion by 2018 through similar initiatives. As such, guidance has the potential to come in better than expected.
On the sentiment front, the brokerage community is largely bullish on JNJ’s prospects, but there is room for improvement. According to data from Thomson First Call, JNJ stock has received 11 buys, 9 holds and one sell rating.
The current 12-month consensus price target rests at $108 per share, representing a modest premium of 12.8% to the stock’s current trading range.
Options activity on JNJ stock is offering up mixed signals. For instance, the January/February put-call open interest ratio comes in at a rather bearish 1.34, with puts easily outnumbering calls among options set to expire within the next month.
However, this ratio plunges to 0.5 in the weekly Jan. 29 series, with calls doubling puts for options that will be most affected by Johnson & Johnson’s quarterly report.
Click to Enlarge Overall, weekly Jan. 29 series implieds are pricing in a potential post-earnings move of about 2.8%. This places the upper bound at $98.70, while the lower bound lies at $93.30.
Technically, JNJ is facing overhead resistance at $98 in the form of the stock’s 200-day moving average while support lies at $94, and from a longer-term perspective, $92.
2 Trades for JNJ Stock
Call Spread: For traders willing to take risks in the current market environment and bet on a rebound for JNJ stock, a February $97/$97.50 bull call spread has potential.
At last check, this spread was offered at 20 cents, or $20 per pair of contracts. Breakeven lies at $97.20, while a maximum profit of $30 is possible if JNJ stock closes at or above $97.50 when February options expire.
Put Sell: There is a concern, however, that JNJ will not move far or fast enough to hit even the most generous of call spread targets. For traders looking for a more neutral-to-bullish stance, a Jan. 29 series $92 put sell position could be a way to take advantage of the multiple levels of technical support just below the shares.
At last check, the $92 put was bid at 55 cents, or $55 per contract. On the upside, traders will keep the initial premium received as long as JNJ stock closes above $92 when January options expire at the end of this week. The downside is that should JNJ trade below $92 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $92 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
