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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
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Johnson & Johnson reports Q2 numbers

Michael Fowlkes

7/14/2018 11:54 AM

What's Happening

Johnson & Johnson (JNJ) is schedule to report its second-quarter results before the market open July 17. Analysts expect to see the company post earnings of $2.06 per share, versus $1.83 during the same period last year. The stock has fallen 9.2% on the year.

Technical Analysis

JNJ was recently trading at $126.40, down $21.92 from its 12-month high and $7.78 above its 12-month low. Overall technical indicators for JNJ are bearish with a downward trend. The stock has recent support above $124.00 and recent resistance below $128.00. Of the 18 analysts who cover the stock, seven rate it a “strong buy”, two rate it a “buy”, seven rate it a “hold”, and two rate it a “strong sell”. JNJ gets a score of 43 from InvestorsObserver’s Stock Score Report.

Analyst's Thoughts

JNJ trended lower through the first five months of the year, but the stock has started to find its footing, and has been moving higher in July ahead of the upcoming earnings report. The stock has an attractive valuation, with a forward P/E of just 14.7, so the stock should move higher as long as the quarterly numbers are in-line or slightly above the consensus. The company has a good earnings track record, posting better than expected numbers for the top and bottom line in each of the last three quarters. The big news in the stock at this time is a recent is the $4.7 billion judgement made against in a case brought by 22 women claiming its baby powder contained asbestos that caused their ovarian cancer. The company faces over 9,000 additional cases over body powders that contain talc. The verdict drove the stock lower, but the company announced it plans to appeal the decision. The legal process will take a long time, so it should not lead to much additional short-term weakness, and if the company can put up another set of better than expected earnings the stock should build on its recent gains.

Stock Only Trade

If you're looking to establish a long stock position in JNJ, consider buying the stock under $126.00. Sell if it falls below $113.50 or take profits if it gets to $145.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a September 110/115 bull-put credit spread for a $0.35 credit. That's a potential 7.5% return (39.3% annualized*) and the stock would have to fall 8.7% 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 September $130 covered call. Buy JNJ shares (typically 100 shares, scale as appropriate), while selling the September $130 call for a debit of $124.60 per share. The trade has a target assigned return of 4.3%, and a target annualized return of 22.9% (for comparison purposes only). 



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