Key takeaways:
Current Price: $148 Price Target: $175
Position size: 2.45% 1-Year Performance: +15%
- Guidance for the year raised again as its medical devices segment continues to perform ahead of expectations:
- Medical devices results were better than expected, thanks to growth in the US and China
- Operational sales growth of raised ~100bps to 0.5%-1.5%
- EPS raised to $7.95-$8.05 from $7.75-$7.95
- Pharma segment showed steady performance with 4.7% growth: Darzalex in oncology continued increased patient intake, Stelara and Xarelto performed better than consensus.
- Consumer segment +3.1%, driven by US sales +12% (share growth for Tylenol, Zyrtec, Listerine and wound care)
- Medical Devices -3.3%: negative impact came from Orthopaedics knee replacement and Sports (Covid delays), Surgery and Vision delays as well
Once more JNJ posted results better than forecasted, and raised its guidance for the year. While JNJ’s Medical Devices results were better than expected (beating consensus by 14%), it appears that the recent trend in September was for a flattening of the growth, which is not surprising considering the increase in COVID cases globally. They are not yet providing full 2021 guidance but guided to a strong double digits growth in Medical Devices and above market growth in Pharma. In Pharma, volume should drive growth, as pricing pressure remains (higher unemployment and potential for HC reform). Operating margins will remain at 2019 levels due to higher R&D expenses (Momenta acquisition bringing some potential blockbuster drugs in autoimmune disorders).
Some Covid vaccine news came yesterday that JNJ was pausing its vaccine trial as a person showed sign of an unexplained illness (similar to AstraZeneca a month ago). This is a normal process in any drug trial, and we think JNJ will ultimately continue its research on finding a reliable vaccine. Overall there is nothing this quarter that is changing our view on JNJ as a core holding in our healthcare portfolio.
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