Johnson & Johnson Exceeds Expectations in Q3 Earnings Report

Johnson & Johnson (NYSE: JNJ) has announced its Q3 financial results, surpassing analyst predictions for both revenue and earnings. The company recorded revenues of $22.5 billion and adjusted earnings of $2.42 per share, exceeding estimates of $22.2 billion and $2.20 respectively. Below, we analyze Johnson & Johnson’s stock performance, highlight key insights from the report, and assess its valuation.

Solid Growth Outpaces Estimates in Q3

In Q3, Johnson & Johnson’s revenue climbed 5.2% year-over-year to $22.5 billion. The Innovative Medicine segment, which includes their pharmaceuticals, grew by 4.9%, while MedTech (medical devices) saw a substantial increase of 5.8%. Strong sales from drugs like Darzalex, Erleada, Spravato, and Tremfya drove this growth. However, Stelara, a leading product, experienced a revenue drop of 6.6% year-over-year, totaling $2.7 billion, with expectations of continued decline due to increasing biosimilar competition. The MedTech division’s growth was spearheaded by advances in electrophysiology and cardiovascular products.

Adjusted net earnings margin for the quarter was 26.1%, compared to 31.7% in the same period last year. This margin reduction can be linked to a special one-time charge and costs related to acquired IPR&D. Consequently, even though the bottom-line earnings of $2.42 reflected a decrease of 9% year-over-year, this figure still surpassed both our estimates and market consensus.

Future Outlook: Raising Sales Guidance Amid Earnings Adjustment

Johnson & Johnson has updated its sales forecast to $88.6 billion at the mid-point, slightly higher than the previous guidance of $88.2 billion. However, the company adjusted its adjusted earnings outlook down to $9.91 per share from $10.05, primarily due to expenses from the recent V-Wave acquisition.

JNJ Stock: Limited Growth Potential Post-Earnings

Even with a strong Q3 performance, Johnson & Johnson’s stock has not seen significant appreciation following the earnings announcement, a trend influenced by the lowered earnings guidance. We maintain a valuation target of $172 per share for JNJ, indicating a modest upside of 5% from its current position at $165. This estimate is based on a price-to-earnings (P/E) multiple of 17 and projected earnings of $9.95 per share for the full year 2024, consistent with the stock’s historical average P/E ratio over the past five years.

This year, JNJ stock has advanced by 7%, but this trails the S&P 500 index, which has surged by 23%. Over a longer period, JNJ has shown considerably less volatility in annual returns compared to the broader index. In comparison, the Trefis High Quality (HQ) Portfolio, which consists of 30 carefully selected stocks, outperformed the S&P 500 annually during the same timeframe, proving to be a more stable investment option.

Comparing JNJ with Industry Peers

While JNJ appears to be facing challenges in growth potential, it is valuable to assess how Johnson & Johnson’s peers are performing on crucial financial metrics. For more insights, you can find additional relevant comparisons for various companies in different industries at Peer Comparisons.

[1] Returns as of 10/16/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.