What To Expect From Johnson & Johnson’s Q3?

Johnson & Johnson stock (NYSE: JNJ) will report its Q3 2024 results on Tuesday, October 15. We expect the company to post revenue of $22.2 billion and earnings of $2.20 per share, broadly aligning with the consensus estimates of $22.1 billion and $2.19, respectively.  J&J will likely continue to benefit from higher sales for some of its key drugs, including Darzalex and Tremfya. The MedTech business may continue to see headwinds from China’s volume-based procurement program (VBP). Our dashboard – Johnson & Johnson’s FY 2024Q3 Earnings Preview – has more details.

Trends To Watch Out For In Q3

J&J should continue to benefit from its multiple myeloma treatment – Darzalex – which has been the key growth driver for the company’s pharmaceuticals business in the recent past. We expect the 2023 sales for Darzalex to come in at around $11 billion, while it may garner around $3 billion in Q3 sales. Some of the company’s new drugs, including Carvykti – a multiple myeloma treatment, and Spravato – an antidepressant – have been gaining market share, a trend expected to continue in the near term. While a biosimilar version of J&J’s second best-selling drug – Stelara – was launched in Europe in July this year, we don’t expect a meaningful impact in Q3.

On the MedTech side, J&J should benefit from an overall pickup in global procedure volume. Also, Abiomed should do well, driven by an increased adoption of Impella technology. J&J also completed the acquisition of Shockwave Medical in May this year, and this likely bolstered the overall MedTech sales growth in Q3. On the flip side, the VBP in China may continue to weigh on the surgery franchise.

How Did J&J Perform In Q2?

Looking at the previous quarter, Johnson & Johnson’s revenue of $22.4 billion in Q2 was up 4.3% y-o-y. The company reported a 5.5% rise in Innovative Medicine and a 4.3% growth for its MedTech business. Excluding the Covid-19 vaccine, the pharmaceuticals sales grew 8.8% y-o-y, led by continued market share gains for Darzalex, Erleada, Spravato, and Tremfya, among others. Stelara saw its revenue rise 3.1% y-o-y to $2.9 billion in Q2.

The continued growth in the MedTech segment can partly be attributed to the higher Electrophysiology sales and Abiomed acquisition, which was closed in December 2022. Abiomed sales were up 14.5% y-o-y, while Electrophysiology revenue was up 10.6%. However, Surgery sales were down 4.1%. The company saw its adjusted net income margin contract by 80 bps y-o-y to 30.5%. J&J’s bottom line expanded 10.2% y-o-y to $2.82 on an adjusted basis.

What It Means For J&J Stock?

We think JNJ stock has little room for growth. We estimate Johnson & Johnson’s Valuation to be $172 per share, reflecting only a 7% upside from its current levels of $161. Our forecast is based on a 17x PE multiple for JNJ and expected earnings of $10.04 on a per-share and adjusted basis for the full year 2024. The 17x P/E multiple aligns with the average P/E ratio over the last five years. J&J expects its adjusted earnings per share for 2024 to be in the range of $9.97 and $10.07. With an in-line performance expected in Q3, JNJ stock may trade sideways next week. However, we would watch out for any revision in earnings estimates and the impact of biosimilar on Stelara, which may define the movement in its stock price in the near term.

Looking at a slightly longer term, JNJ stock has seen little change, moving slightly from levels of $155 in early January 2021 to around $160 now, vs. an increase of about 50% for the S&P 500 over this roughly three-year period. The increase in JNJ stock over the recent years has been far from consistent, although annual returns were considerably less volatile than the S&P 500.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is also less volatile, and it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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