ETFs in Focus Post JNJ Q3 Earnings Beat, Target Price Hike

Johnson & Johnson JNJ infused positive optimism for the broader healthcare sector after posting solid third-quarter 2024 earnings on Oct. 15. The world's biggest healthcare products maker continued with its long streak of earnings beat and also beat revenue estimates. Impressed with the earnings results, a few analysts raised their target price on the stock.

Given this, investors should tap the company’s growth prospects through ETFs with the largest allocation to this diversified drug maker. These include iShares U.S. Pharmaceuticals ETF IHE, iShares U.S. Healthcare ETF IYH, First Trust Nasdaq Pharmaceuticals ETF FTXH, Health Care Select Sector SPDR Fund XLV and VanEck Vectors Pharmaceutical ETF PPH.

Earnings per share came in at $2.42, beating the Zacks Consensus Estimate of $2.22 and well ahead of the year-ago earnings of $2.66. Revenues grew 5.2% year over year to $22.5 billion and outpaced the Zacks Consensus Estimate of $22.19 billion (see: all the Healthcare ETFs here).

Innovative Medicines sales advanced 4.9%, while sales from MedTech devices jumped 5.8%. Sales of JNJ’s top-selling blood cancer treatment, Darzalex, jumped 20.7% to $3.02 billion. However, sales of the blockbuster psoriasis drug Stelara declined 6.6% to $2.68 billion due to the launch of the biosimilar version in certain European markets in July. Several biosimilar versions of Stelara are expected to be launched in the United States in 2025. Imbruvica sales declined 6.8% to $753 million as a new oral drug intensified competition.

For 2024, Johnson & Johnson raised its guidance for the third consecutive quarter from $89.2-$89.6 billion to $89.4-$89.8 billion, indicating year-over-year growth of 6.3%-6.8%. Nevertheless, the company lowered its adjusted earnings per share guidance from $9.97-$10.07 to $9.88-$9.98.

Analysts Lift Target Price

A few analysts have raised the target price on the stocks following the results. Analyst at Stifel Financial boosted the target price for J&J to $170 from $160, maintaining a Hold rating on the stock. RBC Capital Markets lifted the target price to $181.00 from $178.00 while maintaining an Outperform rating on the stock (read: Inside the Booming Obesity Drug Market: Weight Loss ETFs to Win). 

JNJ has a Wall Street average target price of $172.67, ranging from a low of $150.00 to a high of $215.00.

ETFs in Focus

iShares U.S. Pharmaceuticals ETF (IHE)

iShares U.S. Pharmaceuticals ETF provides exposure to 38 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 top spot, accounting for a 22% share. 

iShares U.S. Pharmaceuticals ETF has $661.3 million in AUM and charges 39 bps in fees and expenses. Volume is lower as it exchanges about 25,000 shares a day. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

iShares U.S. Healthcare ETF (IYH)

iShares U.S. Healthcare ETF offers exposure to 107 U.S. healthcare equipment and services, pharmaceuticals, and biotechnology companies by tracking the Russell 1000 Health Care RIC 22.5/45 Capped Gross Index. Johnson and Johnson is the third firm, accounting for 6.8% of the total assets. In terms of industrial exposure, pharma takes the top spot at 31.6%, followed by healthcare equipment (19.6%) and biotech (18.2%). 

iShares U.S. Healthcare ETF has amassed $3.4 billion in its asset base while charging 39 bps in annual fees. It trades in a moderate volume of around 227,000 shares a day and has a Zacks ETF Rank #3 with a Medium risk outlook. 

First Trust Nasdaq Pharmaceuticals ETF (FTXH)

First Trust Nasdaq Pharmaceuticals ETF offers exposure to U.S. companies within the pharmaceuticals industry and tracks the Nasdaq US Smart Pharmaceuticals Index. It holds 50 securities in its basket, with JNJ occupying the third spot at 7.3% of the assets. FTXH has a lower AUM of $17.3 million and an average daily volume of 4,000 shares. 

First Trust Nasdaq Pharmaceuticals ETF charges 60 bps in annual fees and has a Zacks ETF Rank #3.

Health Care Select Sector SPDR Fund (XLV)

Health Care Select Sector SPDR Fund is the most popular healthcare ETF and follows the Health Care Select Sector Index. It holds 62 securities in its basket, with JNJ taking the third spot at 7% of the assets. Pharma, healthcare providers and services, and healthcare equipment & supplies take the largest share at 31.8%, 21.1% and 20.5%, respectively. 

Health Care Select Sector SPDR Fund manages $41.9 billion in its asset base and trades in a heavy volume of around 6 million shares. The expense ratio comes in at 0.09%. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Sector ETFs & Stocks to Gain On Upbeat September Jobs Data).

VanEck Vectors Pharmaceutical ETF (PPH)

VanEck Vectors Pharmaceutical ETF follows the MVIS US Listed Pharmaceutical 25 Index, which measures the performance of companies involved in pharmaceuticals, including pharmaceutical research and development as well as production, marketing and sales of pharmaceuticals. It holds 26 stocks in its basket, with Johnson and Johnson occupying the third position at 6.6% of assets. 

VanEck Vectors Pharmaceutical ETF has amassed $727.9 million in its asset base and trades in a good volume of about 146,000 shares a day. The expense ratio is 0.36%. VanEck Vectors Pharmaceutical ETF has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

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Johnson & Johnson (JNJ): Free Stock Analysis Report
 
Health Care Select Sector SPDR ETF (XLV): ETF Research Reports
 
iShares U.S. Healthcare ETF (IYH): ETF Research Reports
 
iShares U.S. Pharmaceuticals ETF (IHE): ETF Research Reports
 
VanEck Pharmaceutical ETF (PPH): ETF Research Reports
 
First Trust NASDAQ Pharmaceuticals ETF (FTXH): ETF Research Reports

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