Will Q3 earnings prove positive for Johnson & Johnson’s share price?

Johnson & Johnson’s [JNJ] share price has underperformed against the market, growing by only 4.02% for the year to date to 12 October, compared to the S&P 500’s 8.48%. Johnson & Johnson’s share price hit a three-month high of $153.83 on 2 September, but it has fallen in the lead up to its third quarter earnings results on 13 October. Through 12 October’s close, Johnson & Johnson’s share price was sitting at $151.84. Will positive third quarter earnings results send Johnson & Johnson’s share price higher? 

COVID-19 has hit the company’s sales hard over the past few months, particularly in its consumer health and medical device segments, which has put pressure on Johnson & Johnson’s share price. Second quarter sales came in at $18.3bn back in July, 10.8% lower than the same quarter in 2019.

Despite the dip in sales, Johnson & Johnson’s share price has benefitted from some positive developments in the company’s experimental COVID-19 vaccine. It started to test on human volunteers at the end of September.

What to expect for Q3 earnings

Johnson & Johnson’s second quarter results surpassed analysts’ expectations, despite slowing sales. As a result, the company raised its guidance for the 2020 fiscal year to between $7.75 and $7.95, up from its previous projection of between $7.50 and $7.90. Another earnings beat could see Johnson & Johnson’s share price continue to rally.

Johnson & Johnson’s confidence last quarter came from its pharmaceuticals division, which grew by 3.9% during the period. The increase in sales, the company said, was driven by its Crohn’s disease drug Stelara, and cancer medicines Darzalex, Imbruvica and Erleada. 

This is also the area that Zacks analysts predict will have continued above-market sales performance in the third quarter, despite the impact of the coronavirus pandemic. The consensus estimate for Johnson & Johnson’s pharmaceutical segment for the quarter is $11.25bn, according to Zacks Equity Research.

Furthermore, Johnson & Johnson expects the medical devices unit to have declined in the range of 10-25%, which is less sharp than the previous expectation of 20-60%. The publication has a consensus estimate for the medical devices segment of $5.65bn. Johnson & Johnson’s consumer healthcare segment is expected to come in at $3.51bn.

Zacks does not give a forecast for Johnson & Johnson’s earnings per share in the upcoming quarter, but CNN Business offers an estimate of $1.96. 

Where next for Johnson & Johnson’s share price?

Zacks expects investors to look closely for an updated business outlook for 2020 from Johnson & Johnson, which is looking increasingly likely as the company gets closer to producing an effective COVID-19 vaccine. Any information offered in an update could be vital in the movement of Johnson & Johnson’s share price moving forwards.

The EU struck a deal with the company on 8 October to supply 400 million doses of the potential vaccine to its citizens. Although the EU did not disclose the figure, a down payment was made to Johnson & Johnson for the potential vaccine.

This is a positive development for Johnson & Johnson, which has been working on human trials since September. The company is in its third phase of studies and results from the trial are expected by year-end or in early 2021. It is currently testing 60,000 people over the age of 18 from Argentina, Brazil, Chile, Colombia, Mexico, Peru and the US. 

If the company is successful in its venture to find an effective vaccine, it will continue to present itself as a leader in pharmaceuticals worldwide, and undoubtedly keep shareholders happy.

The current consensus among 17 analysts polled by CNN Business is to buy the stock. Out of these analysts, 11 consider it a Buy, two an Outperform and four a Hold. 

Of 15 analysts offering 12-month forecasts for Johnson & Johnson’s share price on CNN Business, the median target is $170, which represents an 11.96% rise from the stock’s price as of 12 October’s close.