Will Johnson & Johnson Stock Rise After Q3 Results?

JNJ: Johnson & Johnson logo
Johnson & Johnson

Johnson & Johnson stock (NYSE: JNJ) is scheduled to report its Q3 2021 results on Tuesday, October 19. We expect J&J to report revenues and earnings slightly above the consensus estimates. The pharmaceuticals sales will likely be driven by continued market share gains for its cancer drugs, Imbruvica and Darzalex, and immunology drugs, Stelara and Tremfya, along with increased contribution from its Covid-19 vaccine. The Medical Devices business is likely to see higher sales growth with a rise in total procedures volume. We expect the company to navigate well based on these trends over the latest quarter. Not only do we believe J&J will post Q3 results slightly above the street expectation, we find JNJ stock to be attractive at the current levels, and it is likely to rise post Q3 results. Our forecast indicates that J&J’s valuation is around $200 per share, which is 26% higher than the current market price of around $159. Our interactive dashboard analysis on Johnson & Johnson Pre-Earnings has additional details.

(1) Revenues expected to be in-line with the consensus estimates

Trefis estimates J&J’s Q3 2021 revenues to be around $23.75 billion, largely in-line with the consensus estimate of $23.74 billion. With over half of the U.S. population fully vaccinated, and on the international front the vaccination rate is rising gradually, total procedure volume is on a rise and this should augur well for J&J’s medical devices business in particular. An economic recovery also bodes well for the company’s Consumer Healthcare business. Looking at the pharmaceuticals business, the company’s three drugs – Stelara, Imbruvica,  and Darzalex – garnered $9.5 billion in sales in first half of 2021, or one-fifth of the company’s total revenues. These drugs will likely remain the key growth driver for J&J in Q3 as well. Our dashboard on Johnson & Johnson Revenues offers more details on the company’s segments.

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2) EPS likely to be above the consensus estimates

J&J’s Q3 2021 adjusted earnings per share (EPS) is expected to be $2.42 per Trefis analysis, slightly above the consensus estimate of $2.36. J&J’s adjusted net income of $6.6 billion in Q2 2021 reflected a 49% y-o-y increase. This can be attributed to over 400 bps rise in net margins. As the company sees a rebound in sales, the margins are expected to improve, especially for its Medical Devices and Consumer Healthcare business, bolstering the overall earnings growth in 2021. For the full-year 2021, we expect the adjusted EPS to be higher at $9.74 compared to $8.03 in 2020. However, there can be near term margin pressure due to inflationary headwinds and supply chain constraints. Also, since the Covid-19 vaccine is being sold on a not-for-profit basis, this will impact the overall pharmaceuticals margin.

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

Going by our Johnson & Johnson’s Valuation, with an EPS estimate of around $9.74 and a P/E multiple of around 21x in 2021, this translates into a price of $200, which is 26% above the current market price of around $159. At current levels of $159, JNJ stock is trading at 16x its expected EPS of $9.74 in 2021, compared to 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

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