The stock of FMCG giant Johnson & Johnson (NYSE: JNJ) closed at $113.09 on Monday. Since January 10th, the stock has lost about 4%. Analysts attribute the lower-than-expected fiscal 2016 fourth-quarter revenue for the decline in the share price. However, there are ample reasons to believe that the downtrend has ended and the stock would rise soon.
The New Brunswick-based company reported a 1.7% increase in fourth-quarter sales to $18.1 billion, from $17.811 billion in the similar period last year. The health care company reported 4Q16 net earnings of $3.8 billion or $1.38 per share, compared with $3.22 billion or $1.15 per share in 4Q15.
Excluding amortization expenses, among other items, the adjusted earnings for the recent quarter were $4.4 billion or $1.58 per share. The reported EPS is 7.9% higher compared to the similar period last year. The average estimate of analysts surveyed by Thomson Reuters was earnings of $1.56 per share on revenues of $18.28 billion. JNJ missed the revenue estimates mainly due to two reasons: strong US dollar and more calendar days in 2015. This is quite clear from the segment-wise revenue reported by the company.
The consumer segment reported a 3.4% y-o-y increase in revenue to $3.43 billion. Likewise, the pharmaceutical segment recorded 2.1% growth in revenue to $8.232 billion. Finally, the medical devices segment posted a 0.2% rise in revenue to $6.44 billion. On a constant currency basis, all three segments posted a decline in revenue.
For fiscal 2017, the company anticipates revenue of between $74.1 billion and $74.8 billion. JNJ also expects adjusted earnings in the range of $6.93 to $7.08 per share. It can be understood from the segment-wise revenue that the company is heavily dependent on the pharmaceutical division. To mitigate risk, the company is now looking at the option of divesting its diabetes care companies, including Animas, Calibra Medical, and LifeScan.
The forward PE ratio of the company is 16.74, while that of the S&P 500 is 18.5. This indicates that the stock is fairly priced at this point in time. Thus, considering the efforts taken by the company to boost growth, fundamentally, we can anticipate a rise in the share price.
The price chart clearly shows that the stock has bounced off the support at 112. The ascending stochastic oscillator underlines an increase in momentum. Thus, a trader can hope to see an appreciation in the share price.
To gain from the uptrend, a trader should purchase a call option from a suitable binary broker. The high or above contract should have an expiry date of February 8th or later. The entry should be made when the stock trades below $113.50.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
