What To Watch For In Johnson & Johnson’s Q4

by Trefis Team
Johnson & Johnson
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Johnson & Johnson (NYSE:JNJ) is set to report its Q4 2018 earnings on January 22, and we expect the company to post low single digit revenue growth, led by a ramp up in its oncology drugs sales. J&J’s key oncology drugs – 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. We expect the company’s Consumer Healthcare business to see modest revenue gains, as growth in Beauty products will mostly be offset by continued decline in Baby Care products, similar to the trend seen in the recent past. Similarly, we don’t expect any significant growth in the company’s Medical Devices segment, as Vision Care and Surgery revenue growth will partly be offset by an expected double digit decline in Diabetes Care products. We have created an interactive dashboard analysis What Is The Q4 Outlook For Johnson & Johnson. You can adjust the various drivers to see the impact on the company’s adjusted  earnings. Below we discuss the forecasts in detail.

Expect Revenues To Grow In Low Single Digits

We expect J&J’s Pharmaceuticals’ revenue to grow in low single digits in Q4, primarily led by a double digit growth in oncology, which will likely see continued ramp up in sales of Imbruvica, Zytiga, and Darzalex. Zytiga could face competitive pressure in 2019, as its patent exclusivity has ended in the past quarter. The drug has gained market share in metastatic high risk castration sensitive prostate cancer. Looking at Immunology, Remicade sales have been on a decline amid generic competition, and this trend will likely continue in Q4 as well. However, the company’s new drug Tremfya, along with Simponi and Stelara, will likely offset the decline from Remicade, and aid the overall segment revenue growth. Among other therapeutic areas, Neuroscience and Cardiovascular/Metabolism will likely see mid-to-high single digit decline in revenue, due to increased competition.

In Consumer Healthcare, we expect only a modest uptick in revenues, as growth in Beauty products will mostly be offset by an expected decline in Baby products. The company has been facing the heat over its talc products over the last month or so. J&J already has been facing thousands of lawsuits against its talc products. The stock price dropped over 10% since mid December, following the article stating that the company was aware of its baby powder products being tainted by asbestos. J&J also announced a $5 billion share buyback program after the fall in its share price. While the company maintains that its talc products are asbestos free, the lawsuits and related media coverage over the issue could have a negative impact on talc products sales.

Medical Devices & Diagnostics segment revenues will likely see low single digit growth, primarily led by Vision Care, and the Surgery business. However, Diabetes could see a sharp decline, as it continues to see competitive pressure and price erosion for its  product range. 

Expect Earnings To Be $2.10 Per Share In Q4

The company’s adjusted net income margin has averaged around 27.5% over the past few quarters, and we forecast it to remain around the same levels in Q4 as well. This will translate into adjusted earnings of $2.10 per share in Q4 or $8.30 for the full year. Our price estimate of $154 for Johnson & Johnson is based on a 19x price to earnings multiple, and is at a premium of over 15% to the current market price. We will update our model and forward earnings estimates post Q4 results.


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