Johnson & Johnson: Provides Optimistic Long-Term Outlook, Representing Upside to Our Valuation

We are holding firm to our $164 fair value estimate for Johnson & Johnson following guidance updates at the firm’s analyst day. While the 2024 earnings guidance of 7% growth (at the midpoint) looks reasonable and is largely in line with our expectations, the 5%-7% compound annual sales growth expected between 2025 and 2030 seems too high, with major patent losses making the growth challenging to achieve. We project sales growth closer to 2% annually between 2025 and 2030. We already view the company as undervalued, and if J&J achieves its long-term guidance, there would be more upside to our fair value. However, irrespective of the growth potential, we expect returns to support the firm’s wide moat largely based on strong innovation boosting pricing power.