The Week Ahead: Abbott Laboratories and Johnson & Johnson Due

Earnings season continues next week with a medley of narrow- and wide-moat companies announcing earnings.

Johnson & Johnson JNJ and Abbott Laboratories ABT will both release earnings on Wednesday.

Johnson & Johnson has had steady growth for the past several years, and we expect this trend to continue with its fourth-quarter earnings. The company is expected to beat fourth-quarter earning estimates despite a recent onslaught of lawsuits. It is currently fighting over 16,000 asbestos-related lawsuits connected to its talcum powder products. Last October, Johnson & Johnson was also ordered to pay out $8 billion in a Risperdal (an anti-psychotic drug) product liability case.

Our director of equity analysis for North America, Damien Conover, stated that “while we expect the quarter’s results to be under some pressure from patent losses in the firm’s oncology and immunology divisions, we expect the full-year 2019 earnings growth to be close to 6%. While patent pressures will likely continue into 2020, Johnson & Johnson’s diversified platform should enable the firm to offset generic competition.” Expected “updates on the firm’s robotic device platforms” should also help reinvigorate growth in the company’s device segment. “However, overall, from a valuation perspective, we view the company as slightly overvalued with some concerns on the firm’s late-stage pipeline weighing on our fair value estimate.”

Abbott Laboratories is changing up its leadership this year with its senior vice president of finance and controller, Robert Funck Jr., becoming CFO and its president and operating chief, Robert Ford, becoming CEO this March. Miles White, the company’s current CEO since 1999, will stay on as the executive chairman. Abbott Laboratories is currently waiting upon FDA approval for its new glucose monitor, Freestyle Libre 2.

Overall, the healthcare sector has increased 22% as of the end of 2019, which, while solid performance, "underperformed the broader equity market performance of 31%." Concerns around potential healthcare policy change in the United States have increased uncertainty in the sector and have affected performance. According to Conover, although U.S. policy reform is probable, it is unlikely that a major overhaul will occur that will affect drug pricing power, which is expected to remain steady. Additionally, while the sector is slightly overvalued, with the most overvalued stocks in the device and diagnostics industries, there are "some pockets of undervalued stocks" in the drug and biotech industries.

On Tuesday, IBM IBM, Netflix NFLX, Capital One Financial COF, UBS UBS, Progressive PGR, and TD Ameritrade AMTD will all be reporting earnings.

Thursday brings another round of earnings announcements, with Microsoft MSFT, Procter & Gamble PG, Intel INTC, Comcast CMCSA, and Discover Financial DFS reporting.

Microsoft has done well in recent months, earning a coveted $10 billion contract with the Joint Enterprise Defense Infrastructure Contract in October. The company has been focusing on the proliferation of its Azure platform and customer adoption of hybrid cloud environments on said platform.

In other economic news, Wednesday also brings with it the FHFA Housing Price Index for January, the Existing Home Sales report for December, and the EIA Crude Oil Inventories for Jan. 18.