Can Johnson & Johnson Beat Full Year 2019 Earnings?

by Trefis Team
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Johnson & Johnson
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Johnson & Johnson (NYSE: JNJ) will release its Q4 and full-year 2019 results on Wednesday, January 22, and it will likely beat the consensus earnings by $0.02, in our view. For full-year 2019, Trefis estimates that the company will report revenues of $82.1 billion, marginally higher than the 2018 figure. The company’s divestiture of its diabetes medical devices business would have weighed on revenue growth. Our revenue estimate is in line with the consensus estimate of $82.1 billion. Looking at the bottom line, the company will likely report an EPS figure of $8.68 on an adjusted basis, reflecting a 6% growth over 2018, primarily due to margin expansion. Our EPS estimate is slightly higher than the consensus estimate of $8.66. We believe that stronger-than-expected earnings for full-year 2019 would overshadow slower revenue growth, and it could result in a slight positive movement in Johnson & Johnson’s stock price post its earnings announcement. Our forecast indicates that Johnson & Johnson’s valuation is $161 per share, which is roughly 8% higher than its current price of around $149. Our interactive dashboard analysis for Johnson & Johnson’s Pre-Earnings details our expectations from the company, parts of which we highlight below.

(1) Revenues Expected To Be In Line With Consensus Estimates

  • Trefis estimates Johnson & Johnson’s 2019 revenues to be $82.1 billion, in line with the consensus estimate of $82.1 billion

(1) Pharmaceuticals                $42.3 Bil  (51%)
(2) Medical Devices                $25.9 Bil (32%)
(3) Consumer Healthcare      $13.9 Bil (17%)
—————————————————–
TOTAL                                     $82.1 Bil
Consensus                               $82.1 Bil
Surprise                                   $0.00 Bil

  • Total revenues have increased at an average annual rate of 6.5% from $71.9 billion in 2016 to $81.6 billion in 2018.
  • However, it is expected to have seen only modest growth in 2019. This would mainly be driven by a drop in Medical Devices business, amid the impact of diabetes business divestiture.
  • Pharmaceuticals will continue to see steady growth led by higher sales from Imbruvica and Darzalex. Notably, Johnson & Johnson’s revenue will likely hover around the $82-billion mark over 2019-2020, as the company faces competition for its blockbuster drugs Remicade and Zytiga following the end of their market exclusivity period.
  • We provide an in-depth view of Johnson & Johnson’s Revenues along with our forecasts in a separate interactive dashboard

2) EPS Likely To Marginally Beat Consensus Estimates

  • Johnson & Johnson’s 2019 adjusted earnings per share (EPS) is expected to be $8.68 per Trefis analysis, marginally higher than the consensus estimate of $8.66 per share.

Total Revenues                  $82.1 Bil
– Total Expenses                $58.8 Bil
————————————————-
Net Income                         $23.4 Bil (*)
÷ Shares Outstanding        2.7 Bil
————————————————-
EPS                                       $8.68
Consensus                            $8.66
Surprise                                $0.02

  • A decrease in total expenses and a modest increase in revenues will drive EPS growth.
  • As we forecast Johnson & Johnson’s revenues to grow at a faster rate than its expenses in 2019 (0.7% vs. -0.9%), this will result in a 110 bps increase in the company’s adjusted net income margin figure from 27.4% in 2018 to 28.5% in 2019, as detailed in the Johnson & Johnson pre-earnings dashboard.
  • For 2020, we believe that slightly lower growth in expenses, and no changes in revenue, will result in the net income margin figure to see a modest decline to 28.3%.
  • Our interactive dashboard analysis about Johnson & Johnson Expenses provides an in-depth view of the company’s expenses.

(3) Stock Price Estimate ~ 8% Higher Than Market Price

  • Trefis forecast for Johnson & Johnson’s 2019 earnings, as well as P/E multiple, are slightly higher than the market expectations, working out to a fair value of $161 for Johnson & Johnson’s stock, which is roughly 8% higher than the current market price of around $149.
  • Our stock price estimate is based on a trailing P/E multiple of 18.5x, which looks appropriate for Johnson & Johnson’s stock. However, it is slightly higher than the current implied P/E multiple of 17.2x.
  • We use our full cash flow model for Johnson & Johnson to arrive at a P/E multiple of 18.5x for a price estimate of $161

Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year.

 

See all Trefis Price Estimates and Download Trefis Data here

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