Ebola Vaccine Sends Johnson & Johnson Stock Higher Ahead of Earnings

 

NEW YORK (TheStreet) – Johnson & Johnson (JNJ) announced Friday that it's working with various organizations to accelerate the development of an Ebola vaccine, research that, if fruitful could bolster the company's already strong business outlook.

The New Brunswick, N.J.-based healthcare giant also said that its consortium was awarded $117 million by the Innovative Medicines Initiative, a European health organization.

Johnson & Johnson, which announced earlier this month the start of an early-stage clinical trial for its Ebola vaccine, wants to expand production of the vaccine for larger clinical trials, and said it will contribute up to $200 million to speed up development.

The drug maker has set goals to produce 2 million regimens this year. These are made up of two shots -- one that primes the immune system and a second is a booster shot.

Johnson & Johnson, which on Tuesday reports fourth-quarter and full-year results for the period ended Dec. 31, 2014, is looking for a head-start in an important drug. For investors, it can be a potentially lucrative one, too. Almost 8,500 people have died from Ebola, among the more than 21,000 people who have been infected, according to the World Health Organization.

On the announcement, Johnson & Johnson shares added 1.51%, closing Friday at $104.04. Its shares are down 0.51% on the year to date, compared with declines of 1.75% and 1.92% in the Dow Jones Industrial Average (DJI) and in the S&P 500 (SPX) , respectively.

The stock, up 10% in the past year, has been a solid defensive play amid a jittery market still pressured by weak oil prices and the prospects of rising interest rates. But Johnson & Johnson must deliver Tuesday.

Analysts expect the company to announce earnings of $1.26 a share on revenue of $18.56 billion for the fourth quarter, and see full-year earnings of $5.96 a share, up 8% year over year. Full-year revenue is projected to be $74.73 billion, up 4.8% year over year.

For Johnson & Johnson, its attention to an Ebola vaccine should -- in the near term -- thwart concerns about the company's size. There have been calls for the company, which some say has become a conglomerate, to break itself up even as Johnson & Johnson's gross margins of 70.76% outperform smaller rivals like Covidien (COV) (60.79%) and Novartis (NVS) (66.76%). Take a look at the chart.

JNJ Chart
JNJ data by YCharts

What's more, among the larger cap health care companies like Pfizer (PFE) , Roche (RHHBY) and Merck (MRK) , Johnson & Johnson's quarterly revenue growth doesn't suggest it needs to break itself up. Its 5% year-over-year growth in the recent quarter is the highest among the four as shown in the chart below. On Tuesday, investors hope to see this trend continue.

JNJ Chart
JNJ data by YCharts

Analysts remain positive about Johnson & Johnson stock, which has an average 12-month price target of $110, suggesting 6% gains from current levels. And if its high target of $123 is reached, that would produce a premium of 18%.

Combined with its 2.7% dividend yield and its projected 5.5% annual growth rate for the next five years, Johnson & Johnson looks like a solid investment, and that's even with no success with its Ebola vaccine.

Follow @Richard_WSPB

At the time of publication, the author held no position in any of the stocks mentioned.

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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