Improved Annual Earnings Forecast and Rumored Deals Add Interest to J&J

Brittney Barrett  |

New Jersey-based Johnson & Johnson (NYSE: JNJ) released first-quarter earnings today, down 23% from a year-earlier period. Despite the decline, the $3.48 billion in earnings or $1.25 a share exceeded analyst expectations and share prices for the company rose in trading today, up $1.63 or 2.70 percent. Health care spending has been minimized by the weak economy but the company’s Chief Financial Officer, Dominic Caruso believes it’s on its way back up.

"Although the utilization in the healthcare markets continues to be below pre-recession levels, we are seeing some sequential improvements," he said in a Wall Street Journal article this morning.

In terms of investment, the earnings released today, alongside rumors that the company is in discussions with Swedish prosthetic hip makers Synthes Inc. (VTX:SYST) regarding a potential merger as the capacity to sweeten shares of J&J.  The company boosted its full-year earnings forecast to a range of $4.90 to $5 a share, from a previous estimate of between $4.80 to $4.90 a share.

J&J cited "both currency exchange rate changes and recent developments in the business," as the reasoning behind the upgrade.

This past quarter revenue for J&J was weakened by $271 in litigation costs and a recall of nearly 100,000 hip replacement units. Without these challenges and in light of a hepatitis C drug developed with Vertex  (NASDAQ: VRTX) and currently being utilized in a European treatment program, shares of J&J will likely see improvements this year. Telaprevir, the hepatitis C drug is currently being sold for 22,000 euros ($31,271USD) in France. According to early reports Telaprevir has shown promising results which could prove highly profitable should the drug quality for use with the FDA stateside or expand European distribution.

In addition to the potential presented by Telaprevir, the Synthes takeover could help J&J recovery some of their device business, which has been lagging since the recalls. The company has a history of being strong in the device department, but the once successful Cordis division, which makes artery-opening stent devices, has been struggling with declining market share and challenging new regulations.

The rumored deal with Synthes Inc. has yet to be confirmed by either companies, but investors willing to take a risk on it and the other developments currently underway at J&J may profit from the benefits of the allegedly $20 billion merger.


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