Wednesday, October 14, 2020

Johnson & Johnson Shares Weaken Despite Earnings Beat

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News shaping
the markets today

     

What’s happening: Shares of Johnson & Johnson moved lower on Tuesday despite the Dow Jones giant reporting better-than-expected earnings for the third quarter and boosting its full-year outlook.

What happened: Although the pandemic hurt Johnson & Johnson’s overall sales in the third quarter, the healthcare behemoth witnessed a sharp increase in demand for its cancer drugs.

The company’s shares declined, however, as investors focused on some concerning news around the US drug-maker’s covid-19 vaccine trials.

How were the results: Johnson & Johnson reported growth for sales and earnings for the third quarter, with both metrices beating expectations.

  • Sales climbed to $21.2 billion, from $20.7 billion in the same quarter last year, surpassing the consensus estimate of $20.2 billion.
  • Net earnings came in at $3.5 billion, or $1.33 per share, up from $1.7 billion, or 66 cents per share, in the year-ago quarter.
  • Adjusted earnings stood at $2.20 per share, exceeding expectations of $1.98 per share.

Why it matters: Johnson & Johnson’s growth in the latest quarter was led by the pharmaceuticals business, which recorded revenues of $11.4 billion, compared to $10.8 billion in the year-ago quarter.

Meanwhile, the pandemic delayed routine medical procedures, adversely impacting the company’s medical device business, the revenues of which declined to $6.1 billion, from $6.4 billion in the year-ago quarter. CEO Alex Gorsky tried to reassure investors by saying that there has been a better-than-expected recovery in procedures.

Management also raised the guidance for the year, projecting sales between $81.2 billion to $82.0 billion and adjusted earnings in the range of $7.95 to $8.05 per share, versus their earlier forecast of $7.75 to $7.95 per share.

Neither top management’s bullish statements nor an upward revision to the guidance helped lift investor sentiment. Markets instead focused on an update to J&J’s covid-19 vaccine candidate.

Johnson & Johnson joined AstraZeneca in announcing the pause of its late-stage study due to a patient developing an unexplained illness. Although management tried to comfort investors by pointing out that such incidents were “an expected part of any clinical study,” the stock succumbed to selling pressure.

How shares responded: J&J’s shares declined by 2.3% to close at $148.36 on Tuesday on concerns around the company pausing its covid-19 vaccine trials. The stock has gained around 2% in the past three months.

What to watch: Markets will keep an eye on the latest developments around J&J’s covid-19 trials. Investors are hopeful as AstraZeneca was able to resume its Phase 3 trials in the UK following a go-ahead from regulators less than a week after halting trials

The Markets Today

     

Crude oil will be in focus today, ahead of the API’s (American Petroleum Institute) report on US crude inventories.

Context: Oil futures settled higher on Tuesday, with WTI (West Texas Intermediate) prices climbing above the $40 resistance level, as China reported a rise in crude imports.

Details: Chinese crude oil imports grew 2% over the earlier month to 11.8 million bpd (barrels per day) in September. The country’s crude oil imports also climbed 12.7% year-over-year during the first nine months of the year.

The OPEC (Organization of the Petroleum Exporting Countries), in its monthly report, left its 2020 forecast for oil demand mostly unchanged, expecting a drop of 9.5 million bpd. However, the group revised its demand outlook for 2021 slightly lower, projecting growth of 6.5 million bpd.

WTI crude for November delivery climbed around 2% to settle at $40.20 per barrel on the NYMEX (New York Mercantile Exchange). Meanwhile, December Brent crude added 1.8% to reach $42.45 per barrel on ICE Futures Europe.

What to watch: Markets await the API’s data on crude oil stockpiles. Stocks of crude oil rose 0.95 million barrels in the week ended October 2, following a 0.831 million decline in the prior week.

Investors will also look out for the Energy Information Administration’s data on crude inventories, the release of which has been delayed by a day to tomorrow due to the Federal holiday on Monday.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down 0.55%, 0.63% and 0.10%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Eurozone's industrial production and ECB President Christine Lagarde’s speech, Argentina’s consumer price index as well as the US MBA mortgage applications and producer prices.