Johnson & Johnson (JNJ) appears to be on track for a record-setting 2024. The company recently posted its second-quarter and half-year results, highlighting its progress toward another year of record revenues and earnings. Significant contributions from the Medicine and MedTech segments are driving this growth. Further, despite some margin pressures, the company’s updated guidance still points to solid earnings gains. In the meantime, with shares appearing attractively valued, I remain bullish on JNJ stock, given this promising outlook.
Examining Q2: Revenue Growth, Margins, and Outlook
Johnson & Johnson’s Q2 report revealed solid growth, driven by key segments like Innovative Medicine and MedTech. While there were some challenges in profitability, including the impact of acquisitions on the company’s expenses, earnings still grew in the double-digits on an adjusted basis, reinforcing my strong position on the stock. Let’s take a deeper look!
Revenue Growth:
Johnson & Johnson’s Q2 revenues were $22.4 billion, reflecting a 6.6% increase year-over-year. U.S. sales were particularly robust, growing by 7.8%, while international sales rose by 5.1%. Excluding the COVID-19 vaccine, global sales growth was 7.2%, with notable strength in Europe, where sales increased by 6%.
The company’s Innovative Medicine segment was a significant driver of this growth, with sales reaching $14.5 billion, up 7.8% from the previous year. In the U.S., this segment grew by 8.9%, and internationally, it grew by 6.4%. This growth was fueled by strong performances from key products such as DARZALEX, which saw a 21.3% increase in sales, driven by share gains across all therapy lines and market growth.
Other standout performers include CARVYKTI, its myeloma medication, whose sales advanced by 59.9% to $186 million, and TECVAYLI, its refractory multiple myeloma medication, whose sales grew by 43.5% to $135 million. According to management, these advances were supported by the successful expansion of manufacturing capabilities and excellent market demand. Products like ERLEADA (treatment of prostate cancer) and TREMFYA (treatment of plaque psoriasis) also contributed notably, posting growth rates of 32.5% and 30.7%, respectively.
The MedTech segment also displayed solid numbers, delivering sales of $8 billion, up 4.4% compared to last year: successful product launches, rising procedure volumes, and acquisitions powered growth in this segment. The cardiovascular division, in particular, stood out, with electrophysiology delivering 13.4% growth, driven by global procedure growth and new product uptake.
Margins Challenges and EPS:
Despite the robust revenue growth, Johnson & Johnson faced some challenges in maintaining margins. The company’s cost of products sold margin worsened by 60 basis points, largely due to an unfavorable product mix within Innovative Medicine and broader macroeconomic factors.
Therefore, net income for the quarter was $4.7 billion, with earnings per share (EPS) at $1.93, down from $2.05 in the same period last year. However, when adjusted for after-tax intangible asset amortization expenses and other one-off items, net income was $6.8 billion, with adjusted EPS of $2.82. This represents a 10.2% rise compared to Q2 2023.
I believe that adjusted earnings provide a more accurate measure of business performance because they account for one-off items that are unlikely to recur. Given this, Johnson & Johnson’s double-digit EPS growth is particularly impressive, especially considering it is one of the most mature companies in the healthcare sector.
Johnson & Johnson’s 2024 Guidance
Looking forward, Johnson & Johnson’s management remains optimistic about the remainder of 2024. As I mentioned earlier, the company is poised for another year of record revenues and earnings that also points to shares trading at a rather attractive valuation.
The company has revised its full-year 2024 guidance, anticipating sales growth between 6.1% and 6.6%. Consensus estimates for the year suggest a more modest growth rate of 3.9%, leading to projected sales of approximately $88.50 billion, a record-breaking figure. Additionally, consensus estimates forecast an EPS of around $10.00. Although this represents a year-over-year increase of just under 1%, indicating potential profitability headwinds in the second half of the year, it nonetheless reflects another record figure for the healthcare giant.
This estimate also implies that JNJ stock is trading at about 15.9 times this year’s expected EPS. I believe this is a very attractive valuation multiple, considering this is a deep-moat company with several growth levers and sleep-well-at-night attributes. With EPS growth projected to remain in the high-single digits, JNJ stock’s current price should provide a decent entry point for long-term investors.
Is JNJ Stock a Buy, According to Analysts?
Looking at Wall Street’s view on the stock, Johnson & Johnson boasts a Moderate Buy consensus rating based on seven Buys and eight sell recommendations in the past three months. At $172.46, the average JNJ stock price target implies 8.20% upside potential.
If you’re looking for the most accurate analyst to follow when buying and selling JNJ stock, Danielle Antalffy of UBS is your top choice. Over the past year, her ratings have delivered an impressive average return of 9.57% and boast a remarkable 100% success rate.
Takeaway
In summary, Johnson & Johnson’s second-quarter results and full-year outlook emphasize the company’s robust growth trajectory, driven by its Innovative Medicine and MedTech segments. Despite some margin pressures, which may intensify in the year’s second half, the company remains positioned for record-breaking revenues.
With shares trading at a reasonable valuation and featuring a compelling medium-term EPS growth forecast, JNJ stock likely presents a compelling opportunity for those looking to hold this quality stock for the long run. So, I am bullish on the long-term prospects of the JNJ stock.
