Skip to Content
Stock Analyst Update

Johnson & Johnson: Steady Quarter, Lower 2020 Guidance

We expect J&J to lead the charge in developing a coronavirus vaccine and view the stock as slightly overvalued.


Against a backdrop of coronavirus challenges, Johnson & Johnson (JNJ) reported first-quarter results largely in line with our expectations and provided updated full-year guidance slightly below our projections. We don’t expect material changes to our fair value estimate based on the quarterly results, and we view the stock as slightly overvalued, as investors appear willing to pay a premium for the firm’s defensive cash flows.

We continue to view the company as having a wide moat supported by quarterly sales gains in the drug segment (fueled by patent-protected innovation) and the consumer business (aided by strong brand power). While more apparent in the consumer group (up 11% operationally year over year), stockpiling also slightly helped the drug group (up 10%). We expect over-the-counter medicines and other consumer goods to start to normalize closer to mid-single-digit growth by the second half of the year. We continue to expect steady drug sales, given patients’ high need and less distribution impact due to the coronavirus, with the exception of likely delays in new patient starts and hospital-administered drugs.

On the weaker side, the coronavirus crowded out elective procedures, which represent over half of J&J’s related devices, causing the segment to fall 5%. We expect device sales to decline faster in the second quarter followed by a rebound in growth in early 2021. However, we expect the strong switching costs inherent in the products will allow the firm to maintain market share and support its moat.

We expect an improving medical community understanding of the coronavirus and likely development of treatments and vaccines will support the 2021 device rebound. We expect J&J to lead the charge in developing a coronavirus vaccine with annual production of 600 million-900 million vaccines likely by early 2021. However, we don’t expect the vaccine to affect the firm’s valuation, given the desire to offer the vaccine on a nonprofit basis.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.