What To Watch For In Johnson & Johnson’s Q2?

by Trefis Team
Johnson & Johnson
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Johnson & Johnson (NYSE:JNJ) is set to report its Q2 2018 earnings on July 17, and we expect the company to post solid numbers, primarily led by continued growth in oncology drug sales, which saw growth of 45% (y-o-y) in the previous quarter. J&J’s Imbruvica, Darzalex, and Zytiga have been on a strong run of late, and we expect this trend to continue, and drive the earnings growth for the company. Having said that, the U.S. Dollar has strengthened over the last few months, and this could have an adverse effect on the overall earnings. We also expect the company’s Medical Devices to see mid-single digit growth in Q2, while the Consumer Healthcare may continue to be sluggish. Within Consumer Healthcare, Beauty may continue to do well and see a high single digit revenue growth. Overall, we estimate the company to post $8.20 adjusted EPS for the full year 2018. We have created an interactive dashboard analysis ~ A Look At Our 2018 Forecast For Johnson & Johnson. You can adjust the revenue and margin drivers to see the impact on the company’s revenues, earnings, and price estimate.

Pharmaceuticals To Lead Earnings Growth

We expect J&J’s Pharmaceuticals’ revenue to grow by 9% in 2018, primarily led by a continued ramp up in oncology drugs sales, and also benefiting from Actelion’s acquisition. 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, and we forecast 2018 sales north of $4 billion. Beyond 2018, the Pharmaceuticals segment growth will be aided by the expansion to additional indications. These two drugs are being tested for a dozen line extensions in phase 3 trials. 

We forecast low-mid single digit revenue growth for J&J’s Medical Devices segment, partly led by vision care, due to the Abbott Medical Optics acquisition last year. However, sales at other areas including, Diabetes care, and Orthopedic may remain sluggish. Looking at 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. Beauty on the other hand is seeing strong growth from Neutrogena and Aveeno. 

Overall, we expect the company to post earnings of $8.20 in 2018. Our price estimate of $154 is based on a price to earnings multiple of 19x 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. Our price target implies a premium of over 15% to the current market price.


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