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Johnson & Johnson (JNJ) Estimates Revised By RBC Capital After Q1, 'Sector Perform' Maintained

 April 18, 2012 03:47 PM

(By Balaseshan) RBC Capital Markets analyst Glenn Novarro raised his earnings estimates for Johnson & Johnson (NYSE:JNJ) while lowering revenue estimates after the company's first quarter results.

The brokerage, which maintained its "Sector Perform" rating and $65 price target, lifted its Q2-2012 adjusted EPS estimate to $1.29 from $1.26, its 2012 estimate to $5.14 from $5.09 and its 2013 estimate to $5.45 from $5.42.

The firm cut its Q2-2012 revenue estimate to $16.627 billion from $16.788 billion, its 2012 forecast to $66.485 billion from $67.048 billion and its 2013 estimate to $69.885 billion from $70.521 billion.

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JNJ reported Q1 sales of $16.14 billion (down 0.2% year-over-year), $120 million lower than Street expectations of $16.3 billion and almost $200 million below Novarro's estimate. The sales miss, relative to Street expectations, was largely driven by Consumer and to a lesser extent MD&D.

On the conference call, management cited modestly positive utilization data, particular for U.S.-based hospital surgical procedural volumes. The analyst noted that JNJ receives surgical procedure data on a one-quarter lag. JNJ posted EPS of $1.37 excluding items, $0.02 ahead of the Street's $1.35 forecast and $0.05 above his estimate of $1.32.

JNJ raised 2012 sales guidance on foreign exchange and earnings guidance to reflect the Q1 beat. JNJ raised 2012 sales guidance to $66.5 billion, reflecting about 2% to 3% year-over-year reported growth (Street estimates $66.4 billion), owing to currency. JNJ raised EPS guidance to $5.07 to $5.17, to reflect the Q1 beat (Street predicts $5.11). 2012 guidance excludes the Synthes acquisition.

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The analyst lowered 2012 sales forecast by about $560 million, reflecting Q1 results and a weaker MD&D and Consumer outlook. He is lowering Consumer forecast by almost $180 million to $14.9 billion (flat% year-over-year) owing to ongoing McNeil issues and supply disruptions associated with remediation efforts/Consent Decree.

For MD&D, Novarro is lowering estimate by $390 million to $26.2 billion (up 2% year-over-year) to reflect a lower U.S. outlook for Cardio Care, Ortho, and Diagnostics. He is reducing gross margin forecast by 40-basis-point to reflect increased remediation costs associated with the McNeil Consent decree, offset by lower SG&A and R&D spend.

Currently JNJ trades at about 12 times forward earnings, a about 6% premium to its large cap diversified peers. Despite JNJ's underperformance year-to-date(down 2% versus SPX up 11%), the analyst believes JNJ remains fairly valued given the company's mid-single-digit EPS outlook. He believes P/E multiple expansion is limited until the company can demonstrate high-single-digit EPS growth.

JNJ is trading down 1.50% at $63.26 on Wednesday.



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