Despite Its Mixed Q4 Johnson & Johnson Stock May See Higher Levels

JNJ: Johnson & Johnson logo
Johnson & Johnson

[Updated: Jan 28, 2022] J&J Q4 Earnings Update

Johnson & Johnson (NYSE:JNJ) reported its Q4 results earlier this week, with revenue as well as earnings falling short of our estimates. The company reported revenue of $24.8 billion (up 10% y-o-y), lower than our forecast of $25.7 billion and the consensus estimate of $25.3 billion. J&J’s EPS of $2.13 was up 14% y-o-y, and it was lower than our forecast of $2.15. However, the company was able to beat the consensus estimate of $2.12. All three segments – Pharmaceuticals, Medical Devices, and Consumer Healthcare saw revenue growth.

However, as anticipated, the pharmaceuticals business, with a 16.5% y-o-y rise in revenue, outperformed the company’s other businesses, including medical devices which saw 4% growth, and consumer healthcare saw its sales grow by just 1%. The company’s management in its earnings conference call, stated that the spread of Omicron adversely impacted the overall recovery for its medical devices business. Our dashboard on Johnson & Johnson Revenues offers more details on the company’s segments. J&J expects to generate $99.6 billion revenue and $10.50 earnings, (at mid-point of its range) on a per share and adjusted basis, in 2022.

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Following its earnings announcement, JNJ stock has seen a rise around 3% over the last week, outperforming the broader markets, with the S&P500 falling 3%. Despite the recent rise, and a mixed Q4 (as compared to the street estimates), we find there is more room for growth in JNJ stock. We estimate Johnson & Johnson’s Valuation to be around $197 per share, which is 15% above the current market price of $171. This represents a P/E multiple of 19x for the company based on our EPS forecast of $10.50 for J&J in 2022.


[Updated: Jan 20, 2022] J&J Q4 Earnings Preview

Johnson & Johnson stock (NYSE: JNJ) is scheduled to report its Q4 2021 results on Tuesday, January 25. We expect J&J to report revenues and earnings 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. However, the company is unlikely to see any meaningful contribution from its Covid-19 vaccine.

The Medical Devices business is likely to see higher sales growth with a rise in total procedures volume, though the rise in Covid-19 cases due to the spread of Omicron since December may have impacted the overall segment revenue growth. Not only do we believe J&J will post Q4 results slightly above the street expectations, we find JNJ stock to be attractive at the current levels, and it is likely to rise post Q4 results.

Our forecast indicates that J&J’s valuation is around $202 per share, which is more than 20% higher than the current market price of around $167. Our interactive dashboard analysis on Johnson & Johnson Pre-Earnings has additional details.

(1) Revenue expected to beat the consensus estimate

  • Trefis estimates J&J’s Q4 2021 revenues to be around $25.7 billion, reflecting a 14% y-o-y growth. This compares with $25.3 billion consensus estimate.
  • While J&J’s medical devices business faced headwinds in 2020, owing to the impact of the pandemic, it has seen a rebound over the recent quarters. This trend likely continued in Q4 as well, with the economies opening up gradually, and procedures volume rising. In fact, medical devices revenues were up 7% to 6.6 billion in Q3, and they were up 15% for the nine month period ending September 2021.
  • An economic recovery also bodes well for the company’s consumer healthcare business, which grew 5% both in Q3 and for the nine month period ending September 2021. The company saw an increased demand for vaccination symptom relief products, such as Tylenol and Motrin, and higher sales for its cough, cold and flu brands, including Imodium in Q3, and this trend likely continued in Q4 as well.
  • Looking at the pharmaceuticals business, the company’s three drugs – Stelara, Imbruvica,  and Darzalex – garnered $14.5 billion in sales in the first nine months of 2021, or 21% of the company’s total revenues.
  • These drugs will likely remain the key growth driver for J&J in the near term, along with its relatively new drug – Tremfya – which garnered $1.4 billion in sales for the nine month period ending September 2021, reflecting a large 48% y-o-y growth.
  • Our dashboard on Johnson & Johnson Revenues offers more details on the company’s segments.

(2) EPS likely to be above the consensus estimates

  • J&J’s Q4 2021 adjusted earnings per share (EPS) is expected to be $2.14 per Trefis analysis, slightly above the consensus estimate of $2.12. J&J’s adjusted net income of $7.0 billion in Q3 2021 reflected a 19% y-o-y increase.
  • This can be attributed to higher revenues, and around 200 bps rise in net margins.
  • As the company sees continued sales growth, the margins are expected to improve, especially for its medical devices business. That said, there can be near term margin pressure due to inflationary headwinds and supply chain constraints.
  • The pharmaceutical business margins may be impacted by continued investment in R&D while consumer healthcare margins are expected to improve.
  • Looking forward, for the full-year 2022, we expect the adjusted EPS to be higher at $10.61 compared to $8.03 in 2020, and an estimated $9.81 in 2021.

(3) Stock price estimate 20% higher than the current market price

  • Going by our Johnson & Johnson’s Valuation, with an EPS estimate of around $9.81 and a P/E multiple of around 21x in 2021, this translates into a price of $202, which is 20% above the current market price of around $167. This compares with levels of 20x seen for the P/E multiple as recently as late 2020.
  • Looking at P/EBITDA ratio, our price estimate of $202 is based on P/EBITDA multiple of 17x based on Johnson & Johnson EBITDA for the last twelve months.
  • The 17x P/EBITDA compares with levels of around 14x seen over the last three years.

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 is likely to move higher in the near term, there are several peers in its sector that look like a better bet than Johnson & Johnson. Check out how Johnson & Johnson Peers fare on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

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

 Returns Jan 2022
MTD [1]
YTD [1]
Total [2]
 JNJ Return 0% 0% 48%
 S&P 500 Return -9% -9% 93%
 Trefis MS Portfolio Return -14% -14% 242%

[1] Month-to-date and year-to-date as of 1/28/2022
[2] Cumulative total returns since the end of 2016

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