Key Takeaways
- JNJ beat Q4 earnings and sales estimates, with its Innovative Medicines Unit outperforming expectations.
- Sales in the unit rose 4.4% YOY to $14.33 billion, led by key drugs such as Darzalex, Uptravi and Erleada.
- Still, JNJ stock has lost 7.9% in the past year compared with 2.2% decline of the industry.
J&J JNJ announced its fourth-quarter 2024 results last week. It beat estimates for both earnings and sales. Though sales of $22.52 billion rose 5.3% from the year-ago quarter, earnings of $2.04 per share declined 10.9% from the year-ago period.
Its Innovative Medicines unit once again outperformed expectations, while the MedTech unit’s sales missed estimates.
Sales in the Innovative Medicines segment rose 4.4% year over year to $14.33 billion. Higher sales of key products such as Darzalex, Tremfya, Uptravi, and Erleada drove the segment’s growth. New drugs like Carvykti, Tecvayli and Spravato also contributed to growth. Xarelto and Simponi/Simponi Aria sales also improved in the quarter. The sales growth was partially dampened by lower sales of Stelara, Imbruvica and generic/biosimilar competition to drugs like Zytiga and Remicade. MedTech segment sales came in at $8.19 billion, up 6.7% from the year-ago period.
J&J issued its financial guidance for 2025. The company expects sales in the range of $89.2 billion-$90.0 billion in 2025, which fell short of estimates. Adjusted earnings per share are expected in the range of $10.50-$10.70.
Nonetheless, a single quarter’s results are not so important for long-term investors, and the focus should, rather, be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play J&J’s stock in the post-earnings scenario.
JNJ’s Innovative Medicine Unit Showing Consistent Strength
J&J’s Innovative Medicine unit is showing a growing trend. The segment’s sales rose 5.8% in 2024 on an organic basis. In 2025, J&J expects growth in the Innovative Medicine segment despite the loss of exclusivity (“LOE”) for its multi-billion-dollar product Stelara, the approximately $2 billion negative impact of the Part D redesign and the greater impact of currency fluctuations. Growth is expected to be driven by its key products, such as Darzalex, Tremfya, Spravato and Erleada, as well as new drugs like Carvykti, Tecvayli and Talvey and new indications for Tremfya and Rybrevant.
J&J expects to generate more than $57 billion in sales in the Innovative Medicines segment in 2025. It expects the Innovative Medicine business to grow 5% to 7% from 2025 to 2030.
Moreover, J&J believes 10 of its new Innovative Medicine products, including new cancer drugs like Talvey and Tecvayli and pipeline candidates like nipocalimab and icotrokinra (JNJ-2113), have the potential to deliver peak non-risk-adjusted operational sales of $5 billion.
Upcoming Patent Expiration of J&J’s Blockbuster Drug Stelara
J&J lost U.S. patent exclusivity of its blockbuster drug, Stelara, in 2025. Stelara generated sales of $10.36 billion in 2024. The launch of generics is expected to significantly erode the drug’s sales and hurt J&J’s sales and profits in 2025. A biosimilar version of Stelara was launched in certain European markets for certain indications in July 2024. Several biosimilar versions of Stelara are expected to be launched in the United States in 2025. Amgen AMGN launched the first Stelara biosimilar, Wezlana, in January 2025. Stelara biosimilar competition is expected to accelerate throughout 2025 as the number of biosimilar entrants increases. Stelara’s loss of exclusivity negatively impacted sales growth by 290 basis points worldwide and 720 basis points in Europe in the fourth quarter. The impact is expected to be higher in 2025.
In addition, sales in 2025 will be hurt by greater Fx impact and approximately $2 billion impact from the Medicare Part D redesign.
Slowing Sales in J&J’s MedTech Segment
Sales in J&J’s MedTech business are facing continued headwinds in the Asia Pacific, specifically in China. Sales in China are being hurt by the impact of the volume-based procurement (VBP) program and the anticorruption campaign. VBP is a government-driven cost-containment effort in China. J&J does not expect any improvement in its business in the Asia Pacific region, specifically in China, in 2025. Competitive pressure is also hurting sales growth in some MedTech businesses like PFA ablation catheter in U.S. electrophysiology. It expects continued impacts from VBP issues in China in 2025 as VBP continues to expand across provinces and products.
Nonetheless, though issues in China are hurting sales, J&J is successfully shifting its portfolio to high-innovation, high-growth markets, particularly in Cardiovascular. With the recent acquisitions of Shockwave in 2024 and Abiomed in 2022, J&J has become a category leader in four of the largest and highest-growth cardiovascular intervention MedTech markets.
J&J expects the overall MedTech market procedure to grow in the range of 5-7% between 2022 and 2027.
J&J’s Talc Suits and Bankruptcy Attempts
J&J faces more than 62,000 lawsuits for its talc-based products, primarily baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer. J&J insists that its talc-based products are safe and do not cause cancer. The company permanently discontinued the sales of its talc-based Johnson’s Baby Powder.
J&J failed twice in its attempts to seek bankruptcy to fully resolve these thousands of lawsuits related to its talc products.
However, in 2024, J&J made strong progress toward resolving the talc litigation. In May 2024, the company proposed a new plan committing to pay claimants approximately $6.5 billion nominally over 25 years, which could resolve 99.75% of all pending talc lawsuits against it. In September, J&J, via another subsidiary called Red River Talc, filed for voluntary bankruptcy (in Texas) for the third time after it received the support of around 83% of current claimants for the proposed bankruptcy plan. Red River also increased its settlement commitment by $1.75 billion to approximately $8 billion. The talc bankruptcy confirmation hearing is expected to take place in February 2025.
J&J Stock’s Price, Valuation and Estimates
J&J’s stock has underperformed the industry in the past year. The stock has lost 7.9% in the past year compared with 2.2% decline of the industry. The stock has also underperformed the sector and the S&P 500 index as seen in the chart below. The stock is also trading below its 200-day and 50-day moving averages.
JNJ Stock Underperforms Industry, Sector & S&P
Image Source: Zacks Investment Research
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its 5-year mean. Going by the price/earnings ratio, the company’s shares currently trade at 13.85 forward earnings, lower than 16.00 for the industry and the stock’s mean of 16.0.
JNJ Stock Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 earnings has declined from $11.11 to $11.06 over the past 60 days.
JNJ Estimate Movement
Image Source: Zacks Investment Research
Stay Invested in J&J Stock
J&J’s biggest strength is its diversified business model. With last year’s complete separation of the Consumer Health segment into a newly listed company called KenvueKVUE, J&J has now become a two-sector company focused on the Pharmaceutical and MedTech fields.
J&J’s Innovative Medicines segment is showing a growth trend. The company has an interesting R&D pipeline that can generate innovative products and drive its growth further. J&J has been on an acquisition spree lately. It completed the acquisitions of Shockwave and V-Wave in MedTech and Ambrx, Proteologix and NM26 bispecific antibody in Innovative Medicine in 2024, which strengthened its pipeline. Continuing the M&A momentum, earlier this month, J&J announced a definitive agreement to acquire Intra-Cellular Therapies ITCI for approximately $14.6 billion, which will strengthen its presence in the neurological and psychiatric drug market.
However, the softness in the MedTech unit, Stelara patent cliff and the potential impact of Part D redesign will be big headwinds in 2025. It remains to be seen how the company navigates them in 2025.
Those who already own this Zacks Rank #3 (Hold) company’s shares may stay invested for some time as the visibility for a potential resolution of the talc lawsuits has improved, and J&J looks optimistic about a better performance in 2025.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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