Johnson & Johnson Earnings: Solid Growth to Start the Year, but We Expect That to Slow by Midyear

Key Morningstar Metrics for Johnson & Johnson

• Fair Value Estimate: $164.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of Johnson & Johnson’s Earnings

We are holding our fair value estimate of $164 per share steady for Johnson & Johnson JNJ following first-quarter results that largely matched our expectations. Management slightly increased full-year 2024 sales and earnings guidance, but that was not meaningful enough to affect our fair value estimate. We still view the stock as undervalued, with the market not fully appreciating J&J’s innovative products, which should propel long-term growth and reinforce the firm’s wide moat.

In the drug unit, sales grew 8% operationally (excluding covid-19 product sales), led by new-product growth. However, we expect a slight slowing as European biosimilars launch against J&J’s immunology drug Stelara in the middle of the year. At just over 10% of total sales, the loss of Stelara exclusivity will drag on growth. However, new-product sales are ramping well and should support the drug unit’s growth over the next two years.

We are particularly encouraged by the firm’s multiple myeloma, or MM, franchise. The entrenched market leadership from Darzalex continues to post steady gains, which we expect to continue based on expanding indications and lengthening patient duration of therapy. Management has singled out the next-generation MM drugs Carvykti, Tecvayli, and Talvey as potentially bringing in over $5 billion annually. This is above our projections but would provide further upside to our fair value estimate if achieved.

On the device side, sales grew 6% operationally, a rate we expect will continue over the next several years based on strong entrenchment in cardiovascular, partly weighed down by other segments. In the quarter, there was a net neutral impact from several one-time issues, including new revenue recognition positively affecting orthopedic sales by close to 300 basis points, which was offset partly by fewer selling days in the quarter and supply constraints in the eyecare unit. We expect these dynamics to normalize by the end of the year.