Johnson & Johnson Inject Markets With Hope

What’s happening: Shares of Johnson & Johnson jumped more than 4% on Tuesday after the company reported better-than-expected earnings for its first quarter.

What happened: The company, which been working on an experimental vaccine for COVID-19, exceeded both revenue and profit estimates.

Investors ignored the reduction in management’s full-year guidance and focused on the strong quarterly results. The earnings call was also positive, raising hopes of the company developing a coronavirus vaccine soon. At a time when most companies are scrapping dividends, Johnson & Johnson bucked the trend and lifted its quarterly dividend by 6.3%.

• Johnson & Johnson’s adjusted earnings climbed 9.5% to $2.30 per share, beating the consensus estimate of $1.99 per share.
• Revenues climbed 3.3% to $20.7 billion, exceeding expectations of $19.3 billion.
• Johnson & Johnson announced plans to pay a quarterly dividend of $1.01 per share.
• J&J projected full-year earnings between $7.50 and $7.90 per share, down from its earlier outlook of between $8.95 and $9.10 per share. Operational sales are expected to range between $77.5 billion and $80.5 billion, down from the prior forecast of $85.8 billion to $86.6 billion.

Why it matters: J&J is expected to witness a decline in sales, with people staying home to avoid infection from spreading. At the same time, the company is incurring higher costs for developing a vaccine for the novel coronavirus.

The New Jersey-based company said it expects to make its single-dose vaccine available in the market by early 2021, and supply 600-800 million doses in the first half of the year, if human trials go well. The company projects human testing of its vaccine to commence by September this year.

The company also disclosed that it is testing two backup vaccines for the virus. The drug manufacturer has a strong track record of developing vaccines for major diseases, including HIV, the Zika virus and Ebola.

The pharmaceutical division was the major contributor of J&J’s revenue in the first quarter, with sales jumping 8.7% to $11.13 billion. However, medical device sales declined 4.8% in the quarter and are expected to decline by a whopping 65-85% in the ongoing quarter with the coronavirus crisis forcing delays or cancellations of non-emergency surgeries.

How the shares responded: Shares of J&J climbed around 4.5% on Tuesday following the release of quarterly results. The company’s shares have received investor attention through the crisis period, and have gained around 9% over the past month, even while markets were highly volatile.

What to watch: Investors will be keeping an eye on the company’s announcements regarding its experimental vaccine for the coronavirus.

Investors will likely be focusing on US stocks today, ahead of earnings from major banks and economic data.

Context: US stocks closed higher on Tuesday, with more signs of a decline in new coronavirus cases in the hardest-hit regions of the country. Investor sentiment remained positive, despite the earnings season starting on a weak note with big banks suggesting a massive impact of coronavirus on their businesses.

Details: Around ten states in the US have started working on their plans to reopen the economy gradually, after the US and various European nations witnessed a slowdown in the number of coronavirus cases.

Fresh economic reports from China also provided some bullishness to the overall market sentiment. China reported a slower-than-expected decline in exports and imports for March, as the country started to recover from the lockdown measures.

The Dow climbed 559 points to end at 23,949.76 on Tuesday, while the S&P 500 rose 3.1% to 2,846.06. The Nasdaq 100 exited the bear market, surging 4% to finish at 8,515.74.

Tesla’s shares spiked more than 9%, adding to its 60% gains over the past seven trading sessions, after Credit Suisse upgraded the stock from Sell to Hold and raised the price target from $415 to $580. Shares of Wells Fargo and JPMorgan dropped on Tuesday after both banks reported lower quarterly profits.

Investors continue to monitor coronavirus numbers, with the total number of cases surpassing 1,986,980 around the world. The number of positive COVID-19 cases in the US has exceeded 601,470 with around 24,420 deaths.

In other news, WTI crude for May delivery declined 10.3% to settle at $20.11 per barrel, while June gold rose 0.4% to settle at $1,768.90.

What to watch: Investors will be keeping an eye on earnings reports from major banks including Citigroup, Bank of America and Goldman Sachs. US stocks are expected to open lower today, with stock futures pointing towards a weak start. Investors also await a basket of economic reports from the country, including retail sales, New York Empire State Manufacturing Index, industrial production, NAHB housing market index and business inventories.

US retail sales, which fell 0.5% in February, are expected to drop 8% in March. The New York Empire State Manufacturing Index is expected to tumble to -35 in April, versus a reading of -21.5 in March. Analysts expect industrial production to decline 4% in March, versus a 0.6% rise in February. The NAHB housing market index is expected to fall to 55 in April, from March’s reading of 72. US business inventories are likely to declined 0.4% in February.

Other Markets: European indices were trading lower on Wednesday at 9:00a.m. GMT, with the FTSE 100, German 30 and French 40 down 1.4%, 1.7% and 1.4%, respectively.

India’s balance of trade, Canada’s new motor vehicle sales, Bank of Canada’s interest rate decision, Russia’s industrial production, China’s foreign direct investment, Argentina’s inflation rate and the US MBA mortgage applications, crude oil stocks change and Fed Beige Book report.