Johnson & Johnson Earnings: Steady Results, but Longer-Term Drug Pressures Mounting

Johnson & Johnson Stock at a Glance

• Current Morningstar Fair Value Estimate: $164.00
• Stock Star Rating: 3 Stars
• Uncertainty Rating: Low
• Economic Moat Rating: Wide

JNJ Earnings Update

Johnson & Johnson JNJ reported first-quarter results that were largely in line with our expectations, and we don’t foresee any major changes to our fair value estimate. While the company slightly increased its 2023 outlook, it also reduced 2025 drug guidance to $57 billion from $60 billion largely due to changes in foreign-exchange rates, which seems reasonable. J&J has a history of digesting currency headwinds and still meeting guidance, but we believe patent losses and slower new drug launches are weighing on the longer-term drug outlook. Nevertheless, the firm remains well positioned for steady growth from a wide portfolio of innovative products that reinforce its wide moat.

In the quarter, total sales increased 8% operationally on adjusted earnings that were slightly down. While J&J has been able to increase prices in the consumer segment and partially manage costs throughout the organization, inflationary pressures on the inputs side are weighing on returns. We expect this trend to stabilize later in the year as inflationary pressures ease.

JNJ Making Pipeline Progress

In drugs—the company’s largest segment at 54% of sales—total sales increased 7% operationally. However, we expect the division to post slowing growth as biosimilars to Stelara launch in the fourth quarter. Due to self-administration and likely interchangeability with multiple products, these biosimilars will probably cause faster Stelara declines than the almost midteens annual losses that Remicade posted due to biosimilar pressures. While Remicade shares several immunology indications with Stelara, we expect a bigger negative impact from Stelara biosimilars.

Offsetting patent pressures, the firm is making progress with its pipeline. We believe the most important 2023 pipeline event is the Mariposa study with J&J’s next-generation epidermal growth factor receptor lung cancer drugs compared with AstraZeneca’s Tagrisso. If successful, J&J will target the $5 billion-plus in annual Tagrisso sales.