JNJ Beats, Ups Sales Growth View: Healthcare ETFs In Focus

Johnson & Johnson (NYSE:JNJ) set the ball rolling for pharma earnings when it reported first-quarter results on Apr 16, before the opening bell. The world's biggest maker of health care products continued its long streak of earnings beat and also outpaced revenue estimates. Though it raised the guidance for full-year sales growth, it tightened the earnings per share forecast.

Earnings per share came in at $2.10, 7 cents ahead of the Zacks Consensus Estimate and 1.9% higher than the year-ago quarter. Revenues inched up 3.9% year over year to $20.02 billion and edged past the Zacks Consensus Estimate of $19.63 billion. The robust results were driven by higher sales of its prescription medicines, including a double-digit increase for its psoriasis treatment, Stelara, as well as cancer drugs Darzalex and Imbruvica (read: Biotechnology Market on a Tear: 5 ETFs in Spotlight).

For 2019, Johnson & Johnson raised its guidance for sales growth to 2.5%-3.5% from 2%-3% but narrowed its earnings per share guidance range to $8.53-$8.63 from $8.50-$8.65. The company’s drug continued to face pricing pressure from generics and biosimilars. In particular, the company's prostate cancer drug, Zytiga, an important growth driver, is facing competition from cheaper generic versions as well as from branded rival, Xtandi developed by Pfizer Inc (NYSE:PFE) and Astellas Pharma. Sales of its rheumatoid arthritis drug Remicade have also been falling due to competition from cheaper biosimilar versions.

The midpoint of the new earnings per share guidance is in line with the current Zacks Consensus Estimate of $8.58.

Market Impact

Shares of JNJ were up 1.1% at the close of session. Currently, the stock has a Zacks Rank #3 (Hold) and has a VGM Score of B. Additionally, Johnson & Johnson belongs to a top-ranked Zacks industry Rank (top 24%).

As a result, investors should closely watch the movement of the stock and keep a close eye on ETFs having double-digit allocation to this diversified drug maker. Below we have highlighted them (see: all the Healthcare ETFs here).

iShares U.S. Pharmaceuticals ETF IHE

This ETF provides exposure to 45 companies that manufacture prescription or over-the-counter drugs or vaccines by tracking the Dow Jones U.S. Select Pharmaceuticals Index. Of these, Johnson and Johnson takes the second spot, accounting for 21.3% share. The product has $369.3 million in AUM and charges 43 bps in fees and expenses. Volume is lower as it exchanges about 16,000 shares a day. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

Health Care Select Sector SPDR Fund XLV

The most popular health care ETF, XLV follows the Health Care Select Sector Index. This fund manages nearly $18.4 billion in its asset base and trades in heavy volume of around 11.4 million shares. Expense ratio comes in at 0.13%. In total, the fund holds 62 securities in its basket, with JNJ taking the top spot at 10.7% of the assets. Pharma accounts for 32.6% share from a sector look, while health care equipment and supplies, health care providers and services, and biotech have double-digit exposure each. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

iShares U.S. Healthcare ETF IYH

This fund offers exposure to 129 securities by tracking the Dow Jones U.S. Health Care Index. Here again, Johnson & Johnson dominates the fund’s returns with 9.9% of the total assets. In terms of industrial exposure, pharma takes the top spot at 31.1%, followed by health care equipment (22.7%) and biotech (18.8%). The product has amassed nearly $2.2 billion in its asset base and charges 43 bps in annual fees. It trades in a good volume of around 144,000 shares a day and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Beat Q1 Earnings Woes With These Sector ETFs & Stocks).

iShares Evolved U.S. Innovative Healthcare ETF IEIH

This actively managed ETF employs data science techniques to identify companies with exposure to the innovative health care sector. Holding 201 stocks in its basket, JNJ is the top firm with 10% allocation. The product has accumulated $5.1 million in its asset base and trades in a meager volume of 2,000 shares per day on average. It charges 18 bps in annual fees.

Vanguard Health Care ETF (AX:VHT)

This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 361 stocks in its basket. Of these, Johnson & Johnson occupies the top position with 9.3% allocation. Pharma takes the largest share at 30%, while health care equipment and biotech round off the top three spots. VHT is also one of the popular and liquid ETFs with AUM of $9.1 billion and average daily volume of about 318,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #1 with a Medium risk outlook (read: Healthcare's Near-Term Prospects Bright: 3 ETFs in Focus).

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Health Care Select Sector SPDR Fund (XLV): ETF Research Reports

Vanguard Health Care ETF (VHT): ETF Research Reports

iShares U.S. Pharmaceuticals ETF (IHE): ETF Research Reports

iShares U.S. Healthcare ETF (IYH): ETF Research Reports

iShares Evolved U.S. Innovative Healthcare ETF (IEIH): ETF Research Reports

Original post

Zacks Investment Research