Reports Q2 2020 results on Thursday, July 16, before the market opens
Yield forecast: $ 17.5 billion
EPS expectation: $ 1.47
Perhaps now is not the time to expect a blown-out quarter from healthcare giant Johnson & Johnson (NYSE 🙂 when it releases its second quarter results on Thursday. The COVID-19 pandemic has damaged sales and made future prospects uncertain. What is commendable, however, for the New Brunswick, New Jersey-based company is the business diversity and financial strength.
The world's largest manufacturer of both consumer and health care pharmaceuticals is one of a handful of megacap companies that have been able to provide guidance throughout the year during this global health crisis.
While JNJ's medical device business is suffering, elective surgery is being slowed to free up space for coronavirus patients, and the demand for consumer brands such as the pain reliever Tylenol, Johnson & # 39; s baby products and the Neutrogena skincare line is on the rise .
Due to this diversity of Johnson & Johnson & # 39; s product portfolio, stocks have performed well during current volatility. Indeed, they have fully recovered from the dip in March. On Tuesday, the stock closed at $ 147.92, up 1.3% YTD, almost unchanged for the year.
According to the company's latest forecast, sales are likely to fall between $ 77.5 billion and $ 80.5 billion this year, down less than 4% from mid-range 2019. However, weakness in the lucrative medical equipment sector is expected to hit earnings harder: J&J expects adjusted earnings to be about $ 7.70 per share, down about 11% from a year earlier.
Despite this setback, JNJ has sufficient financial strength to deal with the current crisis. The company had $ 18 billion in cash and securities at the end of the first quarter and generated $ 3 billion in free cash flow.
Dividend Strength
Investors who own JNJ shares are not looking for momentum. Rather, they are primarily interested in the company's dividend increases and stock stability.
The company has increased its dividend every year for the past 57 years, with at least 50 consecutive annual increases. In April, JNJ increased its quarterly dividend by 6.3% to a payout of $ 1.01 per share every three months, from $ 0.95. The stock currently delivers 2.8% and has a healthy payout ratio of 58.41%, meaning that there will be enough runway left for additional walks in the future.
As such, we see little risk to the dividend, a result of the company's strong cash flows and its leadership in many areas of healthcare. The blockbuster immunology drug Stelara, approved for use by the FDA in 2016, and cancer drugs Darzalex, approved in 2015, and Imbruvica, approved in 2016, are still contributing to the continued sales growth of the company's pharmaceutical division.
However, with this strength, some risks remain for the company's latest forecast. These include the duration of the pandemic and its severity in the fall and winter, government restrictions, potential supply chain disruptions, and continued delays and cancellations of medical procedures.
The decline in medical procedures unrelated to the coronavirus has already exerted pressure on JNJ's medical device business. Sales in that company decreased by 8.2% in Q1. Investors will want to know how this recovers as the company announces its latest earnings as the economies reopen worldwide.
Another negative surprise could come from the consumer division where the peak caused by the pantry loading phenomenon evaporates as consumers delay their emergency purchases.
Bottom Line
JNJ's diversified business model and the stability of its dividend make it a safe bet in today's uncertain environment. The company's earnings on Thursday are likely to demonstrate this strength.
