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Michael Fowlkes' Analyst Insights

InvestorsObserver
Options and ETF Analyst Writer
Michael Fowlkes
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Johnson & Johnson to release Q3 results October 17

Michael Fowlkes

10/14/2017 11:54 AM

What's Happening

Healthcare and consumer goods company Johnson & Johnson (JNJ) will report its third-quarter numbers on October 17. The consensus calls for earnings of $1.80 per share, up from $1.68 during the same period last year. The stock recently hit a record high, and is currently up 18.3% on the year.

Technical Analysis

JNJ was recently trading at $136.99, down $0.53 from its 12-month high and $27.67 above its 12-month low. Technical indicators for JNJ are bullish and the stock is in a strong upward trend. The stock has recent support above $129.00 and has recent resistance below $137.50. Of the 16 analysts who cover the stock, seven rate it a “strong buy”, one rates it a “buy”, six rate it a “hold”, and two rate it a “strong sell”. JNJ gets a score of 59 from InvestorsObserver’s Stock Score Report.

Analyst's Thoughts

Improvements in the overall economy have helped drive Johnson & Johnson earnings higher, with profits rising on average 6.9% over the last five years, and analysts expect 6.7% growth this year, and 6.3% per annum growth over the next five years. The company’s consistency is a primary reason investors remain so upbeat on the stock. The company has posted positive earnings surprises the last 20 quarters, and Wall Street expects that streak to continue with its Q3 report, setting a whisper number of $1.81 for the quarter, a penny above the general consensus. The stock has a reasonable valuation, with a P/E of 23.2, so there is still additional upside potential on the heels of another earnings beat. Analysts have an average price target of $139.71 on the stock.

Stock Only Trade

If you're looking to establish a long stock position in JNJ, consider buying the stock under $137.00. Sell if it falls below $123.50 or take profits if it gets to $157.50.

Bullish Trade

If you want to set up a bullish hedged trade on JNJ, consider a January 120/125 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (28.0% annualized*) and the stock would have to fall 8.5% to cause a problem.

Bearish Trade

There are no bearish trades we like on the stock at this time.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a January $140.00 covered call. Buy JNJ shares (typically 100 shares, scale as appropriate), while selling the January $140.00 call for a debit of $134.50 per share. The trade has a target assigned return of 4.0%, and a target annualized return of 15.1% (for comparison purposes only).

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