Can Johnson & Johnson Stock Rise Post Q1 Results?

by Trefis Team
Johnson & Johnson
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Johnson & Johnson stock (NYSE: JNJ) is scheduled to report its Q1 2021 results on Tuesday, April 20. We expect J&J to report revenues and earnings slightly below the consensus estimates. The pharmaceuticals sales will be driven by market share gains for Imbruvica, Darzalex, and Stelara, more than offsetting the decline in sales of Zytiga and Remicade, owing to biosimilar competition. Medical Devices business was hit last year due to fewer procedures, a trend that has reversed over the recent quarters. However, segment growth could be hit given the surge in Covid-19 cases from newer variants across the globe. We expect the company to navigate well based on these trends over the latest quarter. Similarly, Covid-19 disruptions likely weighed on the company’s consumer healthcare business as well.

J&J began the rollout of its single-dose Covid-19 vaccine in the U.S. in early March 2021, and its near-term supply is expected to decline, as the company faces some manufacturing challenges. That said, the company says that it is on track to deliver 100 million doses to the United States government by the end of May. Separately, the European Union’s health agency is investigating reports that a few people developed serious blood clots after receiving J&J’s Covid-19 vaccine in the U.S. However, we think it’s unlikely that this will impact the eventual rollout of the shot which was recently approved for use in the E.U. While J&J has been in focus over its vaccine, there is not much from a stock price appreciation point of view, given that it is a not-for-profit product for the company. Overall, oncology and immunology drugs will be the key growth driver for J&J in the near term, in our view. Our analysis on J&J Vaccine Updates provides more details.

While we believe J&J will post Q1 results slightly below the street expectation, JNJ stock remains attractive at the current levels. Our forecast indicates that J&J’s valuation is around $196 per share, which is 22% higher than the current market price of around $160. Our interactive dashboard analysis on Johnson & Johnson Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates J&J’s Q1 2021 revenues to be around $21.9 Bil, slightly below the $22.0 Bil consensus estimate. J&J in 2020 saw a decline in medical devices revenue, due to deferment of elective surgeries given the spread of Covid-19. However, the decline was more than offset by continued growth in pharmaceuticals sales driven by its oncology and immunology drugs. The company’s three drugs – Stelara, Imbruvica,  and Darzalex – garnered $16 billion in sales in 2020, or one-fifth of the company’s total revenues. Pharmaceuticals segment will likely remain the key growth driver for J&J in Q1 as well. Our dashboard on Johnson & Johnson Revenues offers more details on the company’s segments.

2) EPS likely to be below the consensus estimates

J&J’s Q1 2021 adjusted earnings per share (EPS) is expected to be $2.28 per Trefis analysis, 2% below the consensus estimate of $2.33. J&J’s adjusted net income of $5.0 Bil in Q4 2020 reflected a modest 1% y-o-y drop. This can be attributed to over 200 bps decline in net margins, partly owing to increased R&D investments. However, as the company sees a rebound in sales, the margins are expected to improve, bolstering the overall earnings growth in 2021. For the full-year 2021, we expect the adjusted EPS to be higher at $9.52 compared to $8.03 in 2020.

(3) Stock price estimate 22% higher than the current market price

Going by our Johnson & Johnson’s Valuation, with an EPS estimate of around $9.52 and a P/E multiple of around 21x in 2021, this translates into a price of $196, which is 22% above the current market price of around $160. At current levels of $160, JNJ stock is trading at 17x its expected EPS of $9.52 in 2021, and the 17x figure compares with levels of 20x seen as recently as late 2020, implying there is more room for growth for JNJ stock.

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

While JNJ stock may be undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Johnson & Johnson vs Regeneron Pharmaceuticals.

See all Trefis Price Estimates and Download Trefis Data here

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