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J&J (JNJ) Stock Before Q2 Earnings: To Buy or Not to Buy?
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Johnson & Johnson (JNJ - Free Report) will report its second-quarter 2024 earnings on Jul 17. The Zacks Consensus Estimate for second-quarter sales and earnings is pegged at $22.38 billion and $2.71 per share, respectively. Earnings estimates for JNJ have declined from $10.64 per share to $10.50 per share for 2024 and from $10.92 per share to $10.86 per share for 2025 over the past 60 days.
JNJ Estimate Movement
Image Source: Zacks Investment Research
Earnings Surprise History
The healthcare bellwether’s performance has been pretty impressive, with the company exceeding earnings expectations in each of the trailing four quarters. It delivered a four-quarter earnings surprise of 4.09%, on average. In the last reported quarter, the company delivered an earnings surprise of 2.65%.
Image Source: Zacks Investment Research
J&J has an Earnings ESP of -0.74% and a Zacks Rank #3 (Hold). Per our proven model, companies with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 have a good chance of delivering an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Upcoming Results
Sales in J&J’s Innovative Medicines segment (previously the Pharmaceutical segment) are expected to have been driven by higher sales of key products such as Darzalex, Stelara, Tremfya and Erleada due to strong market growth and share gains.
The Zacks Consensus Estimate for Stelara sales is pegged at $2.85 billion, while our model projects sales of $2.76 billion.
For Darzalex, the consensus mark is pegged at $2.89 billion, while our model estimates sales of $2.97 billion.
The Zacks Consensus Estimate for Tremfya is $870 million, while our model estimate is $838.9 million.
The consensus estimate for Erleada sales is $691.6 million, while our model projects sales to be $682.5 million.
Other products like Invega Sustenna and Uptravi are likely to show growth. The rapid adoption of new drugs like Carvykti, Tecvayli, Talvey and Spravato are likely to have contributed to top-line growth.
However, lower sales of its key medicine, Imbruvica and COVID-19 vaccine are likely to have hurt the top line in the second quarter. Rising competitive pressure in the United States from novel oral agents is also likely to have hurt sales of Imbruvica. The Zacks Consensus Estimate for Imbruvica is $732.7 million, while our model indicates sales to be $744.2 million.
Generic/biosimilar competition for drugs like Zytiga and Remicade is likely to have hurt the top line.
Overall, Innovative Medicine sales growth is expected to be slightly stronger in the first half of the year compared to the second half due to the potential entry of Stelara biosimilars in Europe in mid-2024.
The Zacks Consensus Estimate for J&J’s Innovative Medicine unit is $14.17 billion, while our estimate is $14.0 billion.
In the first quarter, MedTech segment sales were hurt by fewer selling days, disproportionately impacting orthopedics. This negative impact was not there in the second quarter and sales are likely to have improved sequentially. Continued recovery in worldwide procedure volumes and uptake from recently launched products are expected to have driven sales in the second quarter. However, the impact of volume-based procurement (VBP) issues in China in some categories might have hurt sales to some extent.
The Zacks Consensus Estimate for J&J’s MedTech segment is $8.33 billion, while our model estimate is $8.21 billion.
Nonetheless, a single quarter’s results are not so important for long-term investors. Let us delve deeper to understand whether to buy, sell or hold J&J’s stock.
Price Performance & Valuation
Year to date, J&J’s stock has declined 4.4% against an increase of 24.2% for the industry. The stock has also underperformed the sector as well as the S&P 500.
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 14.02 forward earnings, lower than 20.72 for the industry and the stock’s mean of 16.07. The stock is also trading near its 52-week low.
JNJ Stock Valuation
Image Source: Zacks Investment Research
J&J’s biggest strength is its diversified business model. With last year’s complete separation of the Consumer Health segment into a newly listed company called Kenvue (KVUE - Free Report) , J&J has now become a two-sector company focused on the Pharmaceutical and MedTech fields.
J&J’s Innovative Medicine (previously Pharmaceuticals) and MedTech segments have shown a growth trend and the same is likely to continue in the years ahead. J&J is making rapid progress with its pipeline and line extensions. The company has sufficient funds to pursue bolt-on acquisitions and deals to boost its portfolio. The company is also returning value to shareholders through share buybacks and dividend payments. It has hiked its dividends for 62 consecutive years. Its current dividend yield of around 3.4% is attractive. However, the company is likely to continue to incur billions of dollars for legal expenses in future quarters due to its pending talc-based lawsuits. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer.
Conclusion
No matter how the second-quarter results play out, we suggest a new investor should avoid buying J&J stock right now due to the uncertainty surrounding its legal battles. An investor interested in buying a large drugmaker may consider investing in Vertex Pharmaceuticals (VRTX - Free Report) instead, which has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
However, those who already own J&J stock may stay invested as the company is generating decent sales and profit growth, a trend likely to have continued in the second quarter. If J&J can manage to completely resolve its talc lawsuits, it will remove a significant overhang on the stock and make it an attractive investment. Long-term investors may consider buying J&J’s stock at the present cheap valuation.
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J&J (JNJ) Stock Before Q2 Earnings: To Buy or Not to Buy?
Johnson & Johnson (JNJ - Free Report) will report its second-quarter 2024 earnings on Jul 17. The Zacks Consensus Estimate for second-quarter sales and earnings is pegged at $22.38 billion and $2.71 per share, respectively. Earnings estimates for JNJ have declined from $10.64 per share to $10.50 per share for 2024 and from $10.92 per share to $10.86 per share for 2025 over the past 60 days.
JNJ Estimate Movement
Earnings Surprise History
The healthcare bellwether’s performance has been pretty impressive, with the company exceeding earnings expectations in each of the trailing four quarters. It delivered a four-quarter earnings surprise of 4.09%, on average. In the last reported quarter, the company delivered an earnings surprise of 2.65%.
J&J has an Earnings ESP of -0.74% and a Zacks Rank #3 (Hold). Per our proven model, companies with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 have a good chance of delivering an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Upcoming Results
Sales in J&J’s Innovative Medicines segment (previously the Pharmaceutical segment) are expected to have been driven by higher sales of key products such as Darzalex, Stelara, Tremfya and Erleada due to strong market growth and share gains.
The Zacks Consensus Estimate for Stelara sales is pegged at $2.85 billion, while our model projects sales of $2.76 billion.
For Darzalex, the consensus mark is pegged at $2.89 billion, while our model estimates sales of $2.97 billion.
The Zacks Consensus Estimate for Tremfya is $870 million, while our model estimate is $838.9 million.
The consensus estimate for Erleada sales is $691.6 million, while our model projects sales to be $682.5 million.
Other products like Invega Sustenna and Uptravi are likely to show growth. The rapid adoption of new drugs like Carvykti, Tecvayli, Talvey and Spravato are likely to have contributed to top-line growth.
However, lower sales of its key medicine, Imbruvica and COVID-19 vaccine are likely to have hurt the top line in the second quarter. Rising competitive pressure in the United States from novel oral agents is also likely to have hurt sales of Imbruvica. The Zacks Consensus Estimate for Imbruvica is $732.7 million, while our model indicates sales to be $744.2 million.
Generic/biosimilar competition for drugs like Zytiga and Remicade is likely to have hurt the top line.
Overall, Innovative Medicine sales growth is expected to be slightly stronger in the first half of the year compared to the second half due to the potential entry of Stelara biosimilars in Europe in mid-2024.
The Zacks Consensus Estimate for J&J’s Innovative Medicine unit is $14.17 billion, while our estimate is $14.0 billion.
In the first quarter, MedTech segment sales were hurt by fewer selling days, disproportionately impacting orthopedics. This negative impact was not there in the second quarter and sales are likely to have improved sequentially. Continued recovery in worldwide procedure volumes and uptake from recently launched products are expected to have driven sales in the second quarter. However, the impact of volume-based procurement (VBP) issues in China in some categories might have hurt sales to some extent.
The Zacks Consensus Estimate for J&J’s MedTech segment is $8.33 billion, while our model estimate is $8.21 billion.
Nonetheless, a single quarter’s results are not so important for long-term investors. Let us delve deeper to understand whether to buy, sell or hold J&J’s stock.
Price Performance & Valuation
Year to date, J&J’s stock has declined 4.4% against an increase of 24.2% for the industry. The stock has also underperformed the sector as well as the S&P 500.
JNJ Stock Underperforms Industry, Sector & S&P 500
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 14.02 forward earnings, lower than 20.72 for the industry and the stock’s mean of 16.07. The stock is also trading near its 52-week low.
JNJ Stock Valuation
J&J’s biggest strength is its diversified business model. With last year’s complete separation of the Consumer Health segment into a newly listed company called Kenvue (KVUE - Free Report) , J&J has now become a two-sector company focused on the Pharmaceutical and MedTech fields.
J&J’s Innovative Medicine (previously Pharmaceuticals) and MedTech segments have shown a growth trend and the same is likely to continue in the years ahead. J&J is making rapid progress with its pipeline and line extensions. The company has sufficient funds to pursue bolt-on acquisitions and deals to boost its portfolio. The company is also returning value to shareholders through share buybacks and dividend payments. It has hiked its dividends for 62 consecutive years. Its current dividend yield of around 3.4% is attractive. However, the company is likely to continue to incur billions of dollars for legal expenses in future quarters due to its pending talc-based lawsuits. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer.
Conclusion
No matter how the second-quarter results play out, we suggest a new investor should avoid buying J&J stock right now due to the uncertainty surrounding its legal battles. An investor interested in buying a large drugmaker may consider investing in Vertex Pharmaceuticals (VRTX - Free Report) instead, which has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
However, those who already own J&J stock may stay invested as the company is generating decent sales and profit growth, a trend likely to have continued in the second quarter. If J&J can manage to completely resolve its talc lawsuits, it will remove a significant overhang on the stock and make it an attractive investment. Long-term investors may consider buying J&J’s stock at the present cheap valuation.