Johnson & Johnson Earnings: Growth Outlook Slowing After Solid 2023, but Pipeline Holds Upside

The market is likely not fully appreciating the firm’s long-term potential with pipeline products.

Damien Conover, CFA 23 January, 2024 | 12:27PM
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Johnson & Johnson

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What We Thought of Johnson & Johnson’s Earnings

Johnson & Johnson JNJ reported fourth-quarter results largely in line with our projections, and we are holding firm to our $164 fair value estimate. The stock looks slightly undervalued, as the market is likely not fully appreciating the firm’s long-term potential with pipeline products that also reinforce its wide moat.

Total sales increased close to 9% in the quarter, excluding COVID-19 sales and the Abiomed acquisition. We expect this growth rate will slow in 2024 as European biosimilar Stelara pressure emerges. We believe the firm’s 5%-6% sales growth guidance for 2024 is achievable. However, we expect the acceleration of Stelara pressure (U.S. biosimilars likely in 2025) and slowing medical technology demand (falling backlog from the pandemic) will cause annual sales growth to slow to the low single digits after 2024.

Despite this, J&J holds several recently launched and pipeline products that have the potential to reaccelerate growth over the long term. We believe the combination of Rybrevant and lazertinib will show a survival benefit versus AstraZeneca’s market-leading drug Tagrisso in EGFR lung cancer, which would create a major new blockbuster. Also, J&J’s impressive entrenchment in multiple myeloma with Darzalex is expanding with more recent launches of Carvykti, Tecvayli, and Talvey, which set up a wave of new blockbusters. While the recently highlighted side effects of the CAR-T class of drugs (including Carvykti) are concerning, we still expect Carvykti to generate peak annual sales over $4 billion (close to J&J’s guidance of over $5 billion) based on leading efficacy in a lethal disease.

We expect continued innovation on the device side to also help drive long-term growth, especially in robotics (Ottava and Velys) and interventional solutions (electrophysiology and the Abiomed platform).

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Johnson & Johnson158.68 USD0.52Rating

About Author

Damien Conover, CFA

Damien Conover, CFA  Damien Conover, CFA, is director of healthcare equity research and equity strategy for Morningstar.

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