We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
J&J's Stock Up 12.8% in 3 Months: Time to Buy, Sell or Hold?
Read MoreHide Full Article
In the past three months, J&J’s (JNJ - Free Report) stock has risen 12.8% compared with an increase of 11.4% for the industry. J&J has also outperformed the sector as well as the S&P 500 in the same timeframe. J&J’s stock has also been trading above its 200-day and 50-day moving averages since mid-July.
JNJ Stock Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Most of the stock’s outperformance was related to J&J’s strong second-quarter results, wherein it beat estimates for both earnings and sales. The stock’s outperformance has sent investors wondering if this is the right time to invest in the stock.
We believe the focus of long-term investors should be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock after the latest price increase.
JNJ is the Most Diversified Drug Maker
J&J’s biggest strength is its diversified business model. In August 2023, J&J separated its Consumer Health business into a newly listed company called Kenvue (KVUE - Free Report) , which now operates as a separate and fully independent company. In mid-2024, J&J exited its remaining 9.5% stake in Kenvue’s common stock, bringing the separation to a close. J&J has more than 275 subsidiaries, which clearly means that the business is extremely well-diversified. Its diversification helps it to withstand economic cycles more effectively. J&J has 26 platforms with more than $1 billion in annual sales. It also has one of the largest R&D budgets among pharma companies.
JNJ’s Innovative Medicines Unit Showing Consistent Strength
J&J’s Innovative Medicine (previously Pharmaceuticals) unit is performing at above-market levels. Its growth is being driven by existing products like Darzalex, Stelara, Tremfya, Uptravi and Erleada and also continued uptake of new launches, including Spravato, Carvykti and Tecvayli. J&J has a goal of growing the Innovative Medicines unit into a $60 billion ($57 billion on a constant-currency basis) segment by 2025. The segment’s sales rose 6.8% in 2022, 9% in 2023 and 5.3% in the first half of 2024 on an organic basis. In 2024, J&J expects to record above-market growth in the Innovative Medicine unit for the 13th consecutive year. J&J expects the Innovative Medicine business to grow 5% to 7% from 2025 to 2030.
Moreover, J&J believes 10 of its new Innovative Medicine products have the potential to deliver peak non-risk adjusted operational sales of $5 billion, including new cancer drugs like Talvey and Tecvayli and pipeline candidates like nipocalimab and JNJ-2113.
J&J’s legal and other troubles, however, are overshadowing its strengths. Let’s discuss a few of them.
J&J’s Legal Troubles Seem Neverending
J&J faces a slew of lawsuits, which allege personal injuries to patients caused by the use of its medicines, mainly its talc products. J&J faces more than 62,000 lawsuits for its talc-based products. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer.
J&J’s subsidiary, LTL Management, which was established to manage claims in the cosmetic talc litigation, filed for voluntary bankruptcy twice to equitably resolve all present and future talc-related claims. However, both bankruptcy filings were rejected by courts, stating that J&J was not in enough financial stress to qualify for bankruptcy. In May 2024, LTL Management proposed a new plan, committing to pay claimants a present value of approximately $6.5 billion or $8 billion nominally over 25 years, which could resolve 99.75% of all pending talc lawsuits against the company.
Upcoming Patent Expiration of J&J’s Blockbuster Drug Stelara
J&J will also face the patent expiration of the blockbuster drug Stelara in 2025. Stelara generated sales of $5.3 billion in the first half of 2024. The launch of generics could significantly erode the drug’s sales and hurt J&J’s sales and profits. Stelara biosimilars are expected to be launched in the United States in 2025 while a biosimilar version of Stelara was launched in certain European markets for certain indications in July 2024.
Slowing Sales in J&J’s MedTech Segment
While strong global procedure growth, new product uptake and commercial execution are contributing to the growth of J&J’s MedTech business, a weaker performance in China and competitive pressure in some categories in the United States is partially offsetting the growth. In the second quarter of 2024, sales in China were hurt by the impact of the volume-based procurement (VBP) program, the anti-corruption campaign and a difficult comparison to the year-ago quarter. VBP is a government-driven cost containment effort in China.
In the second quarter, J&J’s MedTech growth fell below its expectations of being in the upper end of expected market growth of 5-7%. J&J expects growth to accelerate in the second half of the year, J&J expects MedTech growth closer to 6% for 2024, lower than the prior expectation of growing at the upper end of the market growth expectation of 5-7%.
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its 5-year mean. Going by the price/earnings ratio, the company shares currently trade at 15.61 forward earnings, lower than 20.53 for the industry and the stock’s mean of 16.07.
JNJ Stock Valuation
Image Source: Zacks Investment Research
Following the earnings guidance cut due to costs related to recent acquisitions, the Zacks Consensus Estimate for 2024 as well as 2025 has gone down, as seen in the chart below.
JNJ Estimate Movement
Image Source: Zacks Investment Research
Conclusion
J&J’s Innovative Medicines segment is showing a growth trend. The company has an interesting R&D pipeline that can generate innovative products and drive its growth further.
However, the softness in the MedTech unit, seen in the second quarter, is a concern. It remains to be seen if the trends improve in the second half. Also, Innovative Medicine sales growth is expected to be slightly lower in the second half of the year compared to the first half due to the entry of Stelara biosimilars in Europe. The company is likely to continue to incur billions of dollars for legal expenses in future quarters due to its pending lawsuits.
We suggest a new investor should avoid buying this Zacks Rank #4 (Sell) stock right now due to uncertainty surrounding its legal battles and expectation of slower sales growth in the second half
There are several other large drugmakers that are generating better growth than J&J and appear to be decent investment options. An investor interested in buying a large drugmaker may consider investing in Eli Lilly (LLY - Free Report) instead, which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, those who already own J&J’s stock may stay invested for some time and see how its sales perform in the second half and if the company can manage to completely resolve its talc lawsuits.
See More Zacks Research for These Tickers
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
J&J's Stock Up 12.8% in 3 Months: Time to Buy, Sell or Hold?
In the past three months, J&J’s (JNJ - Free Report) stock has risen 12.8% compared with an increase of 11.4% for the industry. J&J has also outperformed the sector as well as the S&P 500 in the same timeframe. J&J’s stock has also been trading above its 200-day and 50-day moving averages since mid-July.
JNJ Stock Outperforms Industry, Sector & S&P 500
Most of the stock’s outperformance was related to J&J’s strong second-quarter results, wherein it beat estimates for both earnings and sales. The stock’s outperformance has sent investors wondering if this is the right time to invest in the stock.
We believe the focus of long-term investors should be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock after the latest price increase.
JNJ is the Most Diversified Drug Maker
J&J’s biggest strength is its diversified business model. In August 2023, J&J separated its Consumer Health business into a newly listed company called Kenvue (KVUE - Free Report) , which now operates as a separate and fully independent company. In mid-2024, J&J exited its remaining 9.5% stake in Kenvue’s common stock, bringing the separation to a close. J&J has more than 275 subsidiaries, which clearly means that the business is extremely well-diversified. Its diversification helps it to withstand economic cycles more effectively. J&J has 26 platforms with more than $1 billion in annual sales. It also has one of the largest R&D budgets among pharma companies.
JNJ’s Innovative Medicines Unit Showing Consistent Strength
J&J’s Innovative Medicine (previously Pharmaceuticals) unit is performing at above-market levels. Its growth is being driven by existing products like Darzalex, Stelara, Tremfya, Uptravi and Erleada and also continued uptake of new launches, including Spravato, Carvykti and Tecvayli. J&J has a goal of growing the Innovative Medicines unit into a $60 billion ($57 billion on a constant-currency basis) segment by 2025. The segment’s sales rose 6.8% in 2022, 9% in 2023 and 5.3% in the first half of 2024 on an organic basis. In 2024, J&J expects to record above-market growth in the Innovative Medicine unit for the 13th consecutive year. J&J expects the Innovative Medicine business to grow 5% to 7% from 2025 to 2030.
Moreover, J&J believes 10 of its new Innovative Medicine products have the potential to deliver peak non-risk adjusted operational sales of $5 billion, including new cancer drugs like Talvey and Tecvayli and pipeline candidates like nipocalimab and JNJ-2113.
J&J’s legal and other troubles, however, are overshadowing its strengths. Let’s discuss a few of them.
J&J’s Legal Troubles Seem Neverending
J&J faces a slew of lawsuits, which allege personal injuries to patients caused by the use of its medicines, mainly its talc products. J&J faces more than 62,000 lawsuits for its talc-based products. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer.
J&J’s subsidiary, LTL Management, which was established to manage claims in the cosmetic talc litigation, filed for voluntary bankruptcy twice to equitably resolve all present and future talc-related claims. However, both bankruptcy filings were rejected by courts, stating that J&J was not in enough financial stress to qualify for bankruptcy. In May 2024, LTL Management proposed a new plan, committing to pay claimants a present value of approximately $6.5 billion or $8 billion nominally over 25 years, which could resolve 99.75% of all pending talc lawsuits against the company.
Upcoming Patent Expiration of J&J’s Blockbuster Drug Stelara
J&J will also face the patent expiration of the blockbuster drug Stelara in 2025. Stelara generated sales of $5.3 billion in the first half of 2024. The launch of generics could significantly erode the drug’s sales and hurt J&J’s sales and profits. Stelara biosimilars are expected to be launched in the United States in 2025 while a biosimilar version of Stelara was launched in certain European markets for certain indications in July 2024.
Slowing Sales in J&J’s MedTech Segment
While strong global procedure growth, new product uptake and commercial execution are contributing to the growth of J&J’s MedTech business, a weaker performance in China and competitive pressure in some categories in the United States is partially offsetting the growth. In the second quarter of 2024, sales in China were hurt by the impact of the volume-based procurement (VBP) program, the anti-corruption campaign and a difficult comparison to the year-ago quarter. VBP is a government-driven cost containment effort in China.
In the second quarter, J&J’s MedTech growth fell below its expectations of being in the upper end of expected market growth of 5-7%. J&J expects growth to accelerate in the second half of the year, J&J expects MedTech growth closer to 6% for 2024, lower than the prior expectation of growing at the upper end of the market growth expectation of 5-7%.
J&J’s Attractive Stock’s Valuation, Declining Estimates
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its 5-year mean. Going by the price/earnings ratio, the company shares currently trade at 15.61 forward earnings, lower than 20.53 for the industry and the stock’s mean of 16.07.
JNJ Stock Valuation
Following the earnings guidance cut due to costs related to recent acquisitions, the Zacks Consensus Estimate for 2024 as well as 2025 has gone down, as seen in the chart below.
JNJ Estimate Movement
Conclusion
J&J’s Innovative Medicines segment is showing a growth trend. The company has an interesting R&D pipeline that can generate innovative products and drive its growth further.
However, the softness in the MedTech unit, seen in the second quarter, is a concern. It remains to be seen if the trends improve in the second half. Also, Innovative Medicine sales growth is expected to be slightly lower in the second half of the year compared to the first half due to the entry of Stelara biosimilars in Europe. The company is likely to continue to incur billions of dollars for legal expenses in future quarters due to its pending lawsuits.
We suggest a new investor should avoid buying this Zacks Rank #4 (Sell) stock right now due to uncertainty surrounding its legal battles and expectation of slower sales growth in the second half
There are several other large drugmakers that are generating better growth than J&J and appear to be decent investment options. An investor interested in buying a large drugmaker may consider investing in Eli Lilly (LLY - Free Report) instead, which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, those who already own J&J’s stock may stay invested for some time and see how its sales perform in the second half and if the company can manage to completely resolve its talc lawsuits.