Source: PaxForex Premium Analytics Portal, Fundamental Insight
Johnson & Johnson recently kicked off the healthcare sector's quarterly earnings with a mixed report. The pharmaceutical and medical technology giant exceeded Wall Street expectations on both revenue and profit, posting adjusted earnings of $2.42 per share, surpassing analysts’ forecast of $2.21 per share. However, the company adjusted its full-year earnings outlook, lowering it from $10.00-$10.10 per share to a range of $9.86-$9.96 per share.
If you're evaluating whether to buy, sell, or hold J&J stock, the mixed signals from these earnings might leave you uncertain. Let’s weigh the positives and negatives to gain some clarity.
One key development is J&J's acquisition of V-Wave, a heart-failure device company, for $600 million upfront, with potential milestone payments of up to $1.1 billion. V-Wave’s experimental Ventura device could become the first FDA-approved device of its kind, addressing heart failure with reduced ejection fraction, a condition affecting 800,000 Americans. Should Ventura succeed, it could generate over $1 billion annually in sales, bolstering J&J’s future growth.
J&J revised its earnings guidance downward, factoring in the V-Wave acquisition costs. While this initially appears negative, it’s worth noting that management actually increased its earnings outlook by $0.10 per share, but this was offset by the acquisition-related expenses.
The Ventura device offers future growth potential, but J&J’s current portfolio is already delivering solid results. Third-quarter sales rose 5.2% year-over-year, driven by existing blockbusters. One standout is Carvykti, a treatment for multiple myeloma, which saw an 88% year-over-year increase in sales to an annualized $1.1 billion, with the company projecting it could exceed $5 billion annually.
J&J's neuroscience division is also thriving, with Spravato, a treatment-resistant depression medication, posting a 55% increase in Q3 sales to an annualized $1.1 billion. The company is seeking FDA approval to expand its use, potentially boosting sales even further.
Despite these successes, there are challenges ahead. Biosimilar competition for Stelara, which accounts for 12% of J&J's revenue, is expected to impact US sales in 2025. Additionally, J&J’s antipsychotic franchise faces competition from Bristol Myers Squibb’s Cobenfy, a new drug that offers fewer side effects, potentially capturing market share from J&J's Invega.
However, it’s important to note that Stelara’s market share decline is partly due to patients transitioning to J&J’s newer treatment, Tremfya, which saw a 13% year-over-year sales increase, reaching an annualized $4 billion.
Currently, J&J shares are trading at a reasonable valuation of around 16.5 times the midpoint of management’s adjusted earnings forecast for 2024. This is an attractive price for a company that is expected to grow revenue at a mid-single-digit rate for at least another decade.
If you're holding J&J shares, selling them now may not be the best move. In addition to its relatively low valuation, J&J offers reliable quarterly dividends with a 3% yield. The company has a remarkable track record, having paid dividends for over a century and raised them for 62 consecutive years.
With steady dividend payments and a pipeline of promising new products, holding onto J&J stock, or even buying more, could be a smart long-term strategy.
As long as the price is above 160.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 164.41
- Take Profit 1: 170.10
- Take Profit 2: 175.00
Alternative scenario:
If the level of 160.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 160.00
- Take Profit 1: 155.00
- Take Profit 2: 150.00
