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2 Top Stocks That Raised Their Guidance After Strong Earnings Reports

By David Jagielski – Oct 29, 2021 at 9:15AM

Key Points

  • Both Johnson & Johnson and Verizon delivered strong earnings results this past quarter.
  • Johnson & Johnson could do even better as it recovers from disruptions in its COVID-19 production.
  • Verizon is an attractive option for investors bullish on 5G.

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The one-two punch of strong earnings and a guidance upgrade can generate bullishness around a stock.

Earnings season was important before the pandemic -- and now, given how quickly things change, it has become even more crucial in assessing the strength of a business amid COVID-19. The true test is to see which companies are still performing well as things slowly come back to normal and which may have only gotten a temporary boost from pandemic-induced trends.

Two companies that aren't just coming off earnings beats but have also raised their guidance for the year are Johnson & Johnson (JNJ 0.88%) and Verizon Communications (VZ 1.27%). But is that enough of a reason to make them good buys?

Scientists working in a lab.

Image source: Getty Images.

1. Johnson & Johnson

Healthcare giant Johnson & Johnson released its earnings last week and the results looked solid. In its most recent quarter ended in September, the company's adjusted earnings per share (EPS) of $2.60 came in well ahead of the $2.35 that analysts were expecting. There was a minor miss on revenue as the company's $23.3 billion in sales came in slightly below Wall Street projections of $23.7 billion. But it was still a solid showing for the company, and investors may look past the top line anyway given that Johnson & Johnson also upgraded its guidance.

For the year, J&J expects adjusted EPS to come in between $9.77 and $9.82 vs. its previous top guidance of $9.70. The company also adjusted the lower end of its revenue guidance for the year upward from $93.8 billion to $94.1 billion while maintaining the upper end at $94.6 billion. That translates to about 14% growth on the top line and around 22% on the bottom line.

One reason revenue underwhelmed a bit this past quarter was due to vaccine sales, which totaled $502 million. Earlier this year, the company ran into production issues at a plant in Maryland run by Emergent BioSolutions that wasted millions of doses of its vaccine. However, those issues have since been resolved and should now be behind the company.

Meanwhile, J&J got news last week that the U.S. Food and Drug Administration has approved its vaccine for booster shots, paving the way for more revenue. The company is expecting COVID-19 vaccine sales to account for $2.5 billion this year, a relatively small chunk of its top line. And so while the booster shots should provide a nice bump up in revenue next year, they're still not likely to be a game changer for the business.

The more important takeaway for long-term investors is that the company looks to be back in full force with revenue across all its segments growing from the prior-year period and the future looking strong. While Johnson & Johnson may not be a high-growth stock, it can make for an attractive option for conservative investors who just want to buy and hold.

2. Verizon

Telecom titan Verizon also turned in a strong quarter when it released its latest results this month. For the quarter ended Sept. 30, the company's operating revenue of $32.9 billion rose 4.3% over the year-ago period. Meanwhile, earnings per share jumped 12.8% to $1.41, higher than the $1.36 that analysts were expecting.

And Verizon looks to build on these results, saying it is accelerating the deployment of its 5G network to more customers. With roughly one in four customers currently using 5G-enabled phones, there's still lots of potential growth down the road as adoption rates rise. This year, 5G smartphone sales will more than double to $538.5 million, according to research company Gartner -- representing more than one-third of the market.

For 2021, Verizon projects that its wireless service revenue will grow by 4%, which is at the high end of its previous forecast of 3.5% to 4% growth. And that's consistent with the 3.9% growth the segment grew at this past quarter. It also expects adjusted EPS of $5.35 to $5.40 (vs. a previous guidance of $5.25 to $5.35). The company is seeing strong demand across both its business and consumer segments, likely benefiting from a return to normal in many parts of the country.

Verizon is an attractive recovery stock to own, trading at a relatively cheap forward price-to-earnings multiple of less than 10 while rival Comcast trades at more than 17 times its future profits. Despite its relatively slow growth, Verizon can be ideal for long-term investors who value safety and a business that looks to be in solid shape moving forward.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Comcast, Emergent BioSolutions, Gartner, Johnson & Johnson, and Verizon Communications. The Motley Fool has a disclosure policy.

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