Key takeaways:
· Guidance for the year lowered (note that it was not withdrawn!) due to the COVID-19 impact on its medical devices business (as expected):
o Operational sales growth of -3.0% to +0.5% (down from +5.0-6.0%)
o EPS of $7.50-$7.90 (vs prior $8.95-$9.10).
· The 6.3% dividend increase is welcomed as we see many companies suspending theirs
· Quarterly sales upside was driven by:
o stronger-than expected pharma results
o High over-the-counter drugs sales, as consumers stocked up on cold & flu medicine, and competitive supply disruptions
Overall JNJ had a good quarter, showing its true defensive qualities in a volatile, uncertain environment.
Segment details:
Pharma sales: +10.2% organic and broad-based outperformance (Stelara, Darzalex, Imbruvica, Remicade). We believe drug sales will remain steady given patients’ high need and accessibility to pharmacies. The possible exception is slower new patient starts (less doctors/hospitals visits for non-COVID diseases). J&J is still working on developing a coronavirus vaccine, likely ready by early 2021. But company profitability will not move higher from this given the desire to offer the vaccine on a nonprofit basis.
Medical devices -4.8% organic growth, as procedures are being delayed. We think a rebound in late 2020 is possible as people catch up on necessary procedures
Consumer +11% organic growth almost entirely driven by OTC with strength due to COVID-19 (stocking up and treating symptoms)
Thesis on JNJ:
- High quality company with consistent 20% ROE, attractive FCF yield,
- Investments in the pipeline and moderating patent expirations create a profile for accelerated revenue and earnings growth
- Growth opportunity: Medical Devices and Consumer offer sustainable growth and potential for expansion internationally
- Strong balance sheet that offers opportunities for M&A.
[category Equity Earnings]
[tag JNJ]
$JNJ.US
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109