Johnson & Johnson Q1 Preview: Expect Pharmaceuticals To Drive Earnings Growth

by Trefis Team
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Johnson & Johnson (NYSE:JNJ) is set to report its Q1 2018 earnings on April 17, and we expect the company to post solid numbers, primarily led by continued growth in oncology drug sales, which saw growth of 39% (y-o-y) in the previous quarter. We also expect the company’s Medical Devices to see modest growth while the consumer healthcare may continue to be sluggish. We continue to believe that Oncology drug sales will remain a key growth driver for J&J in the near term, primarily led by label expansion of Darzalex and Imbruvica. We have created an interactive dashboard on J&J’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance.

Pharmaceuticals To Lead Earnings Growth

We expect J&J’s Pharmaceuticals revenue to grow by 8% in 2018, primarily led by a continued ramp up in oncology drugs sales. Within oncology, Imbruvica and Darzalex have seen solid growth of late, and we expect this trend to continue in 2018. These two drugs generated over $3 billion in sales in 2017, reflecting a growth of 72% (y-o-y), and we expect this trend to continue in 2018, and forecast 40% growth. Looking forward, the growth will be aided by the expansion to additional indications. Currently, Imbruvica is being tested for 7 line extensions in phase 3 while Darzalex’s phase 3 pipeline contained trials for six line extensions.

In the Consumer Healthcare business, we expect revenues to grow in low-single-digits, as skin care revenue growth will likely offset any pressure on baby care and other revenues. Note that baby care and other revenues have seen recent declines amid competition from private labels. In addition, a New Jersey state court jury ordered J&J and Imerys Talc America to pay $117 million in damages in a case linking cancer to asbestos in talc on April 11, 2018. While the company has denied the presence of asbestos in talc, this marks the first loss for J&J over its talc-based products, and it may have a small impact on its future sales.

Looking at J&J’s Medical Devices segment, we forecast revenues to grow in low-single-digits in 2018. The company saw a strong uptick in vision care sales in 2017 due to the AMO acquisition, and we expect the company to benefit from that in 2018, as well. However, sales at other areas including, Diabetes care, and Orthopedic may remain sluggish. 

Overall, we expect the company to post earnings of $7.80 in 2018. We forecast a TTM price to earnings multiple of 19 by the end of 2018, which is slightly lower than most of the estimates for the sector, reflecting the risk of generics to J&J’s blockbuster drugs, such as Remicade, to arrive at our price estimate of $149 for Johnson & Johnson. This implies a premium of over 15% to the current market price.

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