Johnson & Johnson (NYSE:JNJ) is scheduled to report fourth quarter 2013 results before the opening bell on Jan 21.

Last quarter, Johnson & Johnson had posted an earnings surprise of +3.82%. We expect the company to beat expectations in the fourth quarter as well.

Why a Likely Positive Surprise?

Our proven model shows that Johnson & Johnson is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.83%. This is a very meaningful and leading indicator of a likely positive earnings surprise.

Zacks #3 Rank (Hold): Note that stocks with Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings estimates. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

The combination of Johnson & Johnson’s Zacks Rank #3 (Hold) and an earnings ESP of +0.83% makes us confident of an earnings beat on Jan 21.

What is Driving the Better-than-Expected Earnings?

Johnson & Johnson’s has delivered positive earnings surprises in the last four quarters with an average beat of 3.34%.

Although growth in several Medical Devices & Diagnostics markets may remain slow due to challenges in the form of European austerity measures, pricing pressure and a slowdown in elective surgeries, the Pharmaceutical segment should continue recording strong growth. The restoration of supply of several over-the-counter (:OTC) products should also drive results.

New products like Zytiga, Invokana, Stelara, Xarelto, Simponi and Invega Sustenna should remain strong contributors. Other growth drivers include Prezista, Remicade and Velcade.

Other Stocks to Consider

Johnson & Johnson is not the only company looking up this earnings season. We also see likely earnings beats coming from these companies in the medical sector:

Biogen Idec. (NASD:BIIB) has an Earnings ESP of +9.01% and holds a Zacks Rank #3. Biogen will be reporting fourth quarter earnings on Jan 29.

Bristol-Myers Squibb Co. (NYSE:BMY) has an Earnings ESP of +2.38% and holds a Zacks Rank #3. Bristol-Myers will be reporting fourth quarter earnings on Jan 24.

Forest Laboratories, Inc. (NYSE:FRX) has an Earnings ESP of +33.33% and holds a Zacks Rank #2 (Buy). Forest Labs will be reporting third quarter fiscal 2014 earnings on Jan 21.

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Read the Full Research Report on BMY
Read the Full Research Report on BIIB


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