Johnson & Johnson Solid Q1 Led By A Ramp Up In Pharmaceuticals Segment

by Trefis Team
Johnson & Johnson
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Johnson & Johnson (NYSE:JNJ) recently posted a better than expected Q1 performance with an 13% jump in sales, led by a ramp up in Oncology drugs – Darzalex, Imbruvica, and Zytiga. The company’s other segments also did well with single digit growth in Consumer Products, and the Medical Devices business. We have revised our price estimate for the company to $155, reflecting an increase of 4% to our earlier estimate. We have created an interactive dashboard of the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance.

J&J’s Solid Q1 Performance Led By Continued Ramp Up In Oncology Drugs Sales

We now expect J&J’s Pharmaceuticals revenue to grow by a little over 9% in 2018, primarily led by a continued ramp up in oncology drug sales, which were up 37% (y-o-y) in Q1. This can be attributed to strong growth for Darzalex, Imbruvica, and Zytiga. The company’s management stated that Zytiga gained market share, following the FDA approval of the LATITUDE Phase 3 trial, and it is unlikely to see any generic competition this year. This should bode well for the Oncology segment.

In the Consumer Healthcare business, revenues grew 5% led by strong growth in the Beauty segment. The company benefited from on overall uptick in the Beauty market, and its Neutrogena brand, especially in Asia-Pacific. We continue to believe that Skin Care in particular will do well in the near term, due to an increased demand in the emerging markets, such as Brazil, Russia, India, and China, which have shown strong economic growth in recent years. The company will benefit from its strong brands such as Neutrogena, Aveeno, Roc, Clean & Clear, Rogaine, and Lubriderm, in these markets. Looking at J&J’s Medical Devices segment, the revenues grew in high-single-digits in Q1. The company saw a 37% uptick in vision care sales in Q1, as it continues to benefit from the AMO acquisition. However, sales at other areas including Diabetes care and Orthopedic were sluggish.

Overall, J&J’s Q1 results were largely in line with expectations, with a ramp up in oncology drugs sales. We believe that oncology drugs will be the key growth driver for J&J in the near term. We currently estimate Darzalex sales to be around $1.8 billion and Imbruvica sales to be roughly $2.6 billion in 2018. The company’s overall outlook for 2018 is 4% to 5% growth in operational sales, and EPS guidance of $7.80 to $8.00. However, we expect the company to post earnings of $8.15 in 2018. We forecast a TTM price to earnings multiple of around 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 $155 for Johnson & Johnson. This implies a premium of over 15% to the current market price.


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