Johnson & Johnson Posts Solid Fourth-Quarter Earnings With Broad Support From All Divisions

Johnson & Johnson Stock at a Glance

• Current Morningstar Fair Value Estimate: $164
• Johnson & Johnson Stock Star Rating: 2 Stars
• Economic Moat Rating: Wide
• Moat Trend Rating: Stable

Johnson & Johnson Earnings Update

Johnson & Johnson JNJ reported solid fourth-quarter results that were slightly above our expectations, but we don’t expect any major changes to our fair value estimate based on the minor outperformance. J&J issued 2023 guidance in line with our expectations, further supporting our fair value estimate, which is slightly below the current stock price. The results show the firm’s ability to offset generic and branded competition with new innovative products, reinforcing its wide moat.

In the quarter, total operational sales increased 5% (excluding COVID-19 vaccine sales), a trend that is likely to slow slightly over the next three years. In contrast to the previous several years, the drug group posted the slowest growth—at 4%—as generic pressures (immunology drug Remicade and cancer drug Zytiga) and some branded pressure (cancer drug Imbruvica) weighed on performance. We expect an increase in biosimilar pressure as immunology drug Stelara loses patent protection in late 2023. We believe J&J has enough strength in recently launched drugs and pipeline drugs to post positive annual pharmaceutical growth over the next three years, but we remain slightly below the firm’s 2025 drug sales guidance of $60 billion.

The remaining divisions—devices (up 5%) and consumer (up 6%)—posted solid growth, but one-time gains helped the results. We believe rebounding demand due to a receding pandemic helped procedure volume in most device markets outside China. However, the recent acquisition of fast-growing cardiovascular device company Abiomed should help the division’s long-term growth. Also, a strong cold/flu season helped buoy consumer over-the-counter drug sales. J&J remains on track to spin off the consumer group, Kenvue, later in the year. With little synergy between the consumer group and the remaining company, we believe the separation will help the strategic focus of both.