Johnson & Johnson Earnings: Both Segments See Solid Q3 Growth

Key Morningstar Metrics for Johnson & Johnson

• Fair Value Estimate: $164.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of Johnson & Johnson’s Earnings

Johnson & Johnson JNJ reported top-line growth of 5.2% in the third quarter, slightly ahead of our expectations. We’re maintaining our fair value estimate of $164 per share for the firm, and see the stock as fairly valued. J&J saw a 9% decline in adjusted earnings per share, largely due to a $1.25 billion charge for acquiring phase 2 atopic dermatitis bispecific antibody NM26 and an additional $1.75 billion charge for talc litigation. Management slightly increased top-line growth guidance (excluding prior-year covid-19-related sales) to 5.4% at the midpoint from 5.0%, with a slight cut to adjusted EPS guidance (now $9.93 at the midpoint), as the cost of the V-Wave acquisition outweighs operational improvements.

J&J’s innovative medicine segment saw 4.9% growth, with oncology standing out as the biggest growth driver. Sales of multiple myeloma therapies Darzalex (21% growth) and Carvykti (88% growth) should continue to reflect strong demand and market share growth, based on data for new combinations and treatment settings.

Conversely, immunology was the biggest drag on growth, with declining sales for older drugs Remicade, Simponi, and Stelara outweighing growth for Tremfya. That said, we think Tremfya is well-positioned for double-digit growth over the next several years, particularly given recent approval in ulcerative colitis and expected approval in 2025 in Crohn’s disease. Data showing Tremfya’s superiority to Stelara should also help mitigate losses in immunology, as biosimilar versions of Stelara reach the market and as J&J competes with other IL23-targeting therapies like AbbVie’s ABBV Skyrizi and Eli Lilly’s LLY Omvoh.

The MedTech segment grew 5.8%, as the contact lens business recovered from distributor stocking headwinds and cardiovascular products saw 26.0% growth, including the Shockwave acquisition finalized at the end of May. We think the firm is on track for mid-to-high-single-digit growth in MedTech over the next few years, despite pricing pressure in China.