Johnson & Johnson (NYSE: JNJ) delivered a solid earnings report on April 15.
On the one hand, the company beat on the top and bottom lines and offered better-than-expected guidance. On the other hand, JNJ acknowledged the likelihood of a $400 million tariff hit on the company’s medical device business that will impact business in the short term.
That was enough to put a damper on an immediate post-earnings rally.
Shares were down about 1% in mid-day trading as investors view any hit to a company’s earnings as a reason to sell. However, on balance, the report offered more good than bad, which investors need to factor in at a time when good enough may have to be good enough.
Tariff Trouble Requires Context
Johnson & Johnson was the first biopharmaceutical company and one of the first medical stocks to report earnings since the Trump administration tariffs were announced.
But with all the uncertainty surrounding future policy moves, investors need to think about the $400 million impact as a worst-case scenario.
The company is currently seeing an impact in its MedTech business due to the steel and aluminum tariffs that are in place. But here’s where it gets a little nuanced. The company is expecting additional tariffs once the Trump administration lifts the exemption on pharmaceuticals.
Those tariffs could happen or may not. They could also come in at a lower level. It’s murky, so it’s good that J&J is acknowledging the bear case.
Investors will know more in the next two months. Until then it’s good to look at the rest of the company’s report.
Innovative Medicine Portfolio Was a Bright Spot
Johnson & Johnson is one of the leading companies in precision (i.e., personalized) medicine. The emerging field of gene therapy is creating opportunities for JNJ to create and refine novel treatments for diseases in areas such as oncology, cardiology, the immune system, and the neurological system.
To that end, Johnson & Johnson had a breakthrough in this area as the European Commission approved the company’s Rybrevant drug for treatment of non-small-cell lung cancer in 2024, following the U.S. Food & Drug Administration’s (FDA) green light in September of the same year.
The long-term multi-billion-dollar potential of Rybrevant comes at a time when JNJ saw its patent expire on its blockbuster drug autoimmune/anti-inflammatory med, Stelara.
Investments in MedTech Are Starting to Pay Off
[content-module:TradingView|NYSE:JNJ]JNJ stock was range-bound for much of 2024. Ongoing litigation surrounding its talc-related products was one reason. But another reason could be found on the company’s balance sheet. The company grew through the acquisition of Abiomed (approximately $17 billion) and Shockwave (approximately $13 billion).
J&J’s MedTech division saw year-over-year revenue growth of around 4.3%. Some investors will say that’s not much return on a $30 billion investment, but the company is still forecasting 5-7% annual growth for the MedTech division, which should allow investors to see a return on that investment.
The Lawsuit That Won’t End
In addition to the potential impact of tariffs, Johnson & Johnson had no new update on the ongoing litigation surrounding the company’s talc-related products. The company’s attempt to spin the lawsuits into a separate company that could then be declared bankrupt was rejected by courts for a third time. If successful, it would have capped payments to claimants at $10 billion. This means that it’s back to the courts for the company and more uncertainty for shareholders.
JNJ Stock Is a Buy-and-Hold for Better Days
[content-module:DividendStats|NYSE:JNJ]Johnson & Johnson is a Dividend King that just increased its dividend for the 63rd consecutive year.
The company raised its dividend by six cents (4.84%) to $1.30 per share. That increase is below the company’s three-year average annualized increase of 5.43%, but it’s well above its historical level of 1.78%.
That's significant because while the litigation and tariff issues are not insignificant, it would seem that those impacts have been largely priced into JNJ stock. If that’s the case, than investors should look at analysts forecasts which suggest an upside of approximately 11% for the stock.
And when you add in a dividend that yields 3.22%, there’s a viable reason to take a buy-and-hold strategy with the stock trading in the middle of its 52-week range.
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