Healthcare ETFs In Focus On Johnson & Johnson Earnings [Health Care SPDR (ETF)]

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April 17, 2014 2:38pm NYSE:IHE NYSE:IYH

healthcare2The healthcare space has seen rough trading this year due to a biotech sell-off as investors are pulling out capital from high growth and high beta stocks.


Amid this environment, the first major company reporting earnings this season in the healthcare world – Johnson & Johnson’s (NYSE:JNJ) – surprised the market with solid Q1 results boosted by the turnaround in pharma business. Further, the healthcare giant raised its full year earnings outlook, suggesting strong growth ahead.

Earnings per share came in at $1.54, easily outpacing the Zacks Consensus Estimate of $1.48 and the year-ago earnings of $1.44. Revenues rose 3.5% to $18.12 billion, trumping the Zacks Consensus Estimate of $17.99 billion.

The robust performance was driven by new and existing drugs sales as well as reduced production and administration expenses. While the drop in consumer products revenue and flat medical device revenue weighed on top-line growth, higher pharmaceutical sales drove the overall results (read: 3 Pharma ETFs Beating the Market).

For 2014, the company projects revenues in the range of $74.5-$75.3 billion and raised its earnings per share outlook to $5.80–$5.90 from $5.75–$5.85. The earnings figure is above the Zacks Consensus Estimate of $5.83 and 2013 reported earnings of $5.52, reflecting bullishness for this company.

Market Impact

Based on earnings beat and stronger-than expected earnings guidance, JNJ shares was up over 2% at the close of the day on elevated volume of nearly 1.6 times the normal average daily volume. In fact, shares are trading at its highest level in more than 34 years and gained 21% over the past one-year period.

This strong performance by JNJ puts healthcare ETFs in focus for the coming days, especially the funds having double-digit allocation to this baby products and biological drugs maker. Investors should closely monitor the movement in these funds and could catch the opportunity from any surge in the JNJ price.

ETFs in Focus

iShares U.S. Pharmaceuticals ETF (NYSEARCA:IHE)

This ETF provides exposure to the pharmaceutical corner of the broad healthcare world by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The fund holds 38 stocks in its basket with Johnson and Johnson taking the top position at 13.42%.

The product has $624.1 million in AUM and charges 46 bps in fees and expense. Volume is light as it exchanges just 33,000 shares a day. The fund added 2.9% so far this year and has a Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Medium’ risk outlook.

Health Care Select Sector SPDR Fund (NYSEARCA:XLV)

The most popular healthcare ETF on the market, XLV follows the S&P Health Care Select Sector Index. This fund manages about $9.8 billion in its asset base and trades in heavy volume of more than 8 million. Expense ratio came in at 0.16% annually. In total, the fund holds about 56 securities in its basket. Of these firms, JNJ takes the first spot, making up roughly 12.79% of the assets.

Pharma accounts for 46% share from a sector look while biotech, healthcare providers and services, and equipment and suppliers make up for double-digit exposure. The fund gained nearly 2.5% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘Medium’ risk outlook (read: ETF Sector Rotation: Industrials Out, Healthcare In).

iShares U.S. Healthcare ETF (NYSEARCA:IYH)

This fund provides exposure to 111 securities by tracking the Dow Jones U.S. Health Care Index. Here again, Johnson & Johnson dominates the fund’s return at 12.07% of total assets. In terms of industrial exposure, Pharma takes the top spot at 49%, closely followed by biotech (20%), medical equipment (17%) and healthcare services (14%).

The product has amassed nearly $2.6 billion in its asset base while charges 45 bps in annual fees. It trades in good volume of more than 267,000 shares a day, suggesting a relatively tight bid/ask spread. IYH is up 2.14% year-to-date and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a ‘Medium’ risk outlook.

This article is brought to you courtesy of Eric Dutram.


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