If you're looking for a safe place to park some money with an expectation for capital gains, above-average dividend yields, and dividend growth you could do a lot worse than Johnson & Johnson (NYSE:JNJ). The company is trading at a value relative to the broad market while yielding more than 2.5% and it comes with such a long history of dividend increases another is virtually guaranteed. The company has been increasing its dividend for 59 years and very well could go on increasing the payout for another 59 without much trouble. The company's balance sheet is a fortress, it's got oodles of free cash flow, and a positive outlook for both revenue and earnings growth. In our view, Johnson & Johnson is the kind of blue-chip company that retirement fortunes are built with and it looks like now is an opportune time to buy.
Johnson & Johnson Misses The Q3 Consensus
Johnson & Johnson had one of those quarters that is only bad when compared to the consensus estimates. The company reported $23.34 billion in net consolidated revenue which is good for a gain of 10.7% over last year and 12.5% over 2019 but missed the Marketbeat.com consensus by 160 basis points.
The mitigating factor is that some of the company's orders have been pushed forward and will be recorded as sales in future quarters including as much as $200 million in COVID-19 related revenue. That alone is enough to make up more than half of the difference in actual revenue and the consensus and there were other areas of the business impacted as well. On a segment basis, sales of Pharma grew by 13.8% to outpace Medical Devices by nearly 600 basis points. On a regional basis, International sales grew by 13.8% while sales in the US grew by 7.9%.
Moving down the report, the company experienced a 115 basis point contraction in operating margin leaving the margin at 15.7%. The decline in margin is a red flag but less than expected and resulted in mixed results on the bottom line. On a GAAP basis, the $1.37 in earnings missed the consensus by $0.80 well on an adjusted basis to $2.60 in EPS beat consensus by $0.25.
Looking ahead, the company raised its guidance but left the top end of the revenue range unchanged. The lower end of the revenue range is now $92.80 billion compared to the prior $92.50 with resulting EPS well above the prior range. The new range for EPS has a low end of $9.77 compared to the previous high-end of $9.60 and the consensus estimate of $9.64. This, along with the dividend and value, is what got the market moving. Johnson & Johnson is trading at only 16.6X its earnings consensus compared to nearly 22X for the broad market.
The Technical Outlook: Johnson & Johnson's Correction Is Over
Shares of Johnson & Johnson had been correcting for the past two or three months but that correction appears to be over. The Q3 results and full-year guidance outlook have shares up more than 3% and trading above the short-term moving average. This move confirms what looks like a quick Head & Shoulders reversal at the $160 level that is confirmed by the indicators. Both indicators are showing clear bullish crossovers and entry signals in tandem with the reversal pattern and the move above the short-term moving average. This should be considered a strong entry signal and one that could lead shares of JNJ back up to the $180 level fairly quickly. That will be good for a gain of nearly 10% and would bring the price action within striking distance of the current Wall Street high price target of $200.
