Johnson & Johnson Earnings: Pharma Momentum, but MedTech Headwinds Dampen Growth

Key Morningstar Metrics for Johnson & Johnson

• Fair Value Estimate
  : $190.00
• Morningstar Rating
  : ★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Low

What We Thought of Johnson & Johnson’s Earnings

Johnson & Johnson JNJ reported 5.9% top-line growth and a 7.5% adjusted EPS decline in the third quarter (including the cost of the Firefly acquisition), and management slightly raised full-year guidance on both measures. Shares fell 7% intraday on Oct. 13.

Why it matters: While J&J’s update for its Innovative Medicine business (two-thirds of sales) was almost uniformly positive, the MedTech business faces a few headwinds (particularly outside the United States) that weigh on J&J’s growth and prevent management from raising guidance more significantly.

• Global Innovative Medicine growth of 7.7% (with even higher growth in the US at 11.1%) reflects the steady share gains for J&J’s biggest products, led by Darzalex (15.4%) in oncology and Tremfya (68.3%) in immunology.
• MedTech struggles were most apparent in cardiovascular (Abiomed down 2.3% due to reduced use of Impella following a disappointing clinical trial result) and surgery (down 0.6% due to reimbursement pressure in China and order disruptions in the Middle East).

The bottom line: We’re maintaining our $190 fair value estimate per share for wide-moat J&J after making modest changes to our valuation model. We think the market continues to overvalue J&J shares, incorporating higher long-term top- and bottom-line growth than we think is warranted.

• Our model includes 6.5% average annual sales growth (6.8% pro forma excluding orthopedics) from 2025 to 2030, and we’re skeptical of J&J’s ability to reach its goal of double-digit growth by the end of the decade. We’re also short of its $50 billion oncology sales target by 2030 (at $46 billion).

Coming up: We’re looking forward to more details on J&J’s 2027 outlook and early-stage pipeline promise at the Enterprise Business Review on Dec. 8.

• We expect more details around long-term sales potential for the new immunology drug Icotyde, as well as the separation of the orthopedics business, which management now says is more likely to take the form of a spin.