Johnson & Johnson Earnings: Solid Results Lifted by Immunology and Oncology Drug Sales

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 solid third-quarter results slightly above our projections, but we are not changing our fair value estimate based on a minor outperformance. While we recognize that growth in the pharmaceutical division is likely slowing due to upcoming patent pressures, we continue to view J&J as slightly undervalued, with the market likely underappreciating its solid pipeline—a key factor also supporting our wide moat rating.

The drug unit posted 4% operational growth, a rate that should largely continue until patent pressures increase in mid-2024. In the firm’s largest two drug segments, immunology and oncology, new product launches and solidly entrenched drugs supported steady gains. However, we expect immunology sales growth to flatten in 2024 with the likely launch of a biosimilar for Stelara (which represents close to 13% of total sales) in mid-2024 in Europe and early 2025 in the United States.

In oncology, J&J looks well-positioned for growth, with limited patent pressures and robust pipeline advancements. We remain most bullish on lung cancer treatment Rybrevant plus lazertinib, which recently showed superior data versus market leader Tagrisso (over $5 billion in 2022 sales) from AstraZeneca AZN.

The device segment posted 6% operational growth, a rate we expect will decelerate as the overall market slows. While we believe pent-up demand caused by the COVID-19 pandemic is likely still fueling growth here, we expect it to slow as the market normalizes.

Regarding talc litigation, with J&J having won close to 75% of the over 40 talc cases that have rulings and close to two-thirds of claimants favoring the $8.9 billion settlement, we believe that settlement will be sufficient to address the claims.

On capital allocation, we increasingly expect J&J to make a major acquisition over the next two years, given its very strong balance sheet and the likely slowing growth it faces in 2025.