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JNJ Earnings Forecast - Is Pharmaceutical Industry Set for Shake-up?

As pharma titan Johnson & Johnson (JNJ) gears up to unveil its first-quarter results on April 16, 2024, anticipation looms over the pharmaceutical industry. JNJ’s recent acquisitions signal the company’s strategic expansions, and given its history as one of the prominent pharma companies, is JNJ’s forecast as stunning? Let us find out...

As April 16 approaches, all eyes are on pharma giant Johnson & Johnson (JNJ), waiting to see if its first-quarter earnings will shake up the Pharmaceutical industry. This article explains why the stock could be an ideal buy now.

Before delving into the reasons, let us first see what is happening in the pharma industry,

Driven by rising chronic diseases and the availability and utilization of innovative therapeutics in developed markets, IQVIA reported an increase in global medicine use by 12%, with an annual use projected at 3.80 trillion defined daily doses. Spending on medicine is forecasted to grow by 38% through 2028.

As a result, global spending on medicines is projected to reach $2.30 trillion by 2028. This represents a significant growth trajectory, with spending expected to exceed pre-pandemic levels and biotech accounting for 39% of global spending, reaching over $892 billion by 2028.

The global pharmaceutical market is projected to reach $1.16 trillion this year. By 2028, it is expected to grow at a CAGR of 6.2, reaching $1.47 trillion. The United States is also anticipated to lead globally, generating the highest revenue of $636.90 billion in 2024.

Analysts expect JNJ to report an EPS and revenue of $2.65 and $21.39 billion in the to-be-reported quarter. Moreover, the company has successfully surpassed its consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

JNJ recorded $85.20 billion in sales last year. Its medical technology business generated $30.40 billion, while the innovative medicines segment accounted for the majority of revenue, reaching $54.80 billion.

Looking ahead, JNJ’s fiscal year 2024 guidance outlines adjusted operational sales growth of 5% to 6%, reaching approximately $88.20 billion to $89 billion. Adjusted operational EPS is expected to range between $10.55 and $10.75, reflecting a growth of 6.4% to 8.4%. Reported sales are estimated to be between $87.80 billion and $88.60 billion.

The stock declined marginally intraday, closing the last trading session at $147.52.

Here are the financial aspects of JNJ that could influence its performance in the near term:

Recent Acquisitions

On April 5, 2024, JNJ acquired Shockwave Medical, Inc. (SWAV) for $335 per share in cash, totaling approximately $13.10 billion, expanding its presence in cardiovascular intervention.

On March 7, JNJ completed the acquisition of Ambrx Biopharma, a company specializing in synthetic biology technology for developing next-generation antibody-drug conjugates (ADCs), for approximately $2 billion in an all-cash merger. This acquisition enhances JNJ’s capabilities in developing targeted oncology therapeutics, particularly ARX517 for metastatic castration-resistant prostate cancer.

These acquisitions not only bolster JNJ’s portfolio but also underscore its commitment to innovation and growth.

Strong Financials

During the fourth quarter that ended December 31, 2023, JNJ’s sales to customers and gross profit amounted to $21.40 billion and $14.60 billion, up 7.3% and 5.4% year-over-year, respectively. The company’s adjusted net earnings and net earnings per share from continuing operations rose 2.4% and 11.7% year-over-year to $5.56 billion and $2.29, respectively.

Steady Dividend Payouts

On March 5, 2024, JNJ paid a quarterly dividend of $1.19 per share. The company’s annual dividend of $4.76 translates to a 3.23% yield on the prevailing prices, higher than its four-year average dividend yield of 2.64%.

JNJ’s dividend payouts have grown at CAGRs of 5.6% and 5.8% over the past three and five years, respectively. It also has a record of 61 years of consecutive dividend growth.

Robust Profitability

JNJ’s trailing-12-month EBIT and levered FCF margins of 27.79% and 23.24% are notably higher than the 0.80% and 0.65% industry averages, respectively. Furthermore, the stock’s trailing-12-month EBITDA margin of 36.13% is 597.1% higher than the 5.18% industry average.

Discounted Valuation

In terms of forward non-GAAP P/E, JNJ is trading at 13.83x, 26.8% lower than the industry average of 18.90x. Its forward EV/EBITDA multiple of 11.34 is 11.3% lower than the industry average of 12.78. Besides, its forward EV/EBIT multiple of 12.47 is 21.7% lower than the industry average of 15.93.

POWR Ratings Exhibit Solid Prospects

JNJ’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JNJ’s Value grade of B is supported by its discounted valuation. Similarly, its Stability grade of B correlates with its 24-month beta of 0.32. Additionally, the Quality grade of B aligns with its superior profitability metrics compared to the industry peers.

Within the 160-stock Medical – Pharmaceuticals industry, JNJ is ranked #7.

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, and Sentiment. Get all JNJ ratings here.

Bottom Line

Global medicine use is rising rapidly, which should bode well for the pharma industry.

JNJ’s recent acquisition of Shockwave Medical, Inc. is expected to expand its cardiovascular intervention portfolio. Moreover, its acquisition of Ambrx Biopharma should strengthen its capabilities in developing targeted oncology therapies.

With its dedication to spearheading healthcare innovations and strategic acquisitions, JNJ emerges as an enticing investment opportunity. Also, the company boasts over six decades of uninterrupted dividend increases and remains steadfast in delivering reliable returns to its shareholders.

Additionally, its appealing valuation and low beta value make it a wise investment option. Considering its strong financial performance in the recent quarter, coupled with robust profitability, the stock could be an ideal buy now.

How Does Johnson & Johnson (JNJ) Stack Up Against Its Peers? 

While JNJ has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Medical – Pharmaceuticals industry: GSK PLC ADR (GSK), Daiichi Sankyo Company, Limited (DSNKY), and Taro Pharmaceutical Industries Ltd. (TARO), with an A (Strong Buy) rating.

To explore more Medical – Pharmaceuticals stocks, click here.

What To Do Next?

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JNJ shares were trading at $147.86 per share on Monday afternoon, up $0.34 (+0.23%). Year-to-date, JNJ has declined -4.95%, versus a 6.85% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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