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Michael Fowlkes' Analyst Insights

InvestorsObserver
Options and ETF Analyst Writer
Michael Fowlkes
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Johnson & Johnson reports Q1 earnings April 17

Michael Fowlkes

4/14/2018 11:54 AM

What's Happening

Consumer goods maker Johnson & Johnson (JNJ) is expected to post its first-quarter numbers before the market open on April 17. JNJ is forecast to earn $2.01 per share, up from $1.83 during the same period last year. The stock is down 6.3% on the year.

Technical Analysis

JNJ was recently trading at $130.51, down $17.81 from its 12-month high and $9.56 above its 12-month low. Overall technical indicators for JNJ are neutral with a downward trend. The stock has recent support above $123.50, and recent resistance below $134.50. Of the 18 analysts who cover the stock, eight rate it a “strong buy”, two rate it a “buy”, six rate it a “hold”, and two rate it a “strong sell”. JNJ gets a score of 41 from InvestorsObserver’s Stock Score Report.

Analyst's Thoughts

JNJ sold off sharply following its January earnings report after the company posted weaker than expected sales for the quarter. The stock found support, but with the overall market volatility it has failed to manage a material rebound from its January sell off. If the company is able to post solid Q1 numbers, shares could rally, but any sign of weakness will bring bears back into the stock and drive shares lower. Even with the recent selloff, the stock still trades with a forward P/E of 15.2, so there is downside risk. Traders are expecting an earnings beat, with a whisper number of $2.03, but as evident following last quarter’s report, the company will need to beat on both the top and bottom line in order for the stock to trade higher. Analysts forecast sales of $19.38 billion and have an average price target of $150.33 on the stock.

Stock Only Trade

If you're looking to establish a long stock position in JNJ, consider buying the stock under $130.50. Sell if it falls below $117.50 or take profits if it gets to $150.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a June 110/115 bull-put credit spread for a 30-cent credit. That's a potential 6.4% return (36.4% annualized*) and the stock would have to fall 11.6% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a June 145/150 bear-call credit spread for a $0.25 credit. That's a potential 5.3% return (30.0% annualized*) and the stock would have to rise 11.3% to cause a problem.

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 June $135 covered call. Buy JNJ shares (typically 100 shares, scale as appropriate), while selling the June $135 call for a debit of $128.30 per share. The trade has a target assigned return of 5.2%, and a target annualized return of 30.2% (for comparison purposes only).

 

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