Key takeaways:
Current Price: $169 Price Target: $200
Position size: 2.21% 1-Year Performance: +13%
- 2Q2021 results were above expectations, and 2021 guidance is conservative in our view:
- Overall sales +24% organic, adjusted EPS +48.5%
- Pharma segment performing well with sales +11% organically
- Covid vaccine sales came $164M below $785M consensus expectations
- Key new drugs performed very well, most businesses are back to pre-covid levels
- Oncology +24%, immunology +16%
- Consumer segment: +10% growth
- Over the counter sales growth of +14% drove the beat, recovering from pandemic hit
- Oral care +7%
- Baby care +9% (Aveeno sales online doing well)
- Skin care/beauty +16%
- Medical Devices: +59% organic sales growth (+8% growth vs 2Q 2019)
- All business lines outperformed, rebounding from last year’s covid disruption, and recapturing deferred procedures
- Restocking added 130bps to growth
- US and Asia are above 2019 levels
- Covid remains a disruption in EMEA and Latam
- Dividend remains a priority, followed by M&A
- The management team did not discuss recent press reports citing a potential spin-off of its talc-based products, nor did it discuss other press reports on possible settlements for the opioid litigation
- Operating margins came in line with expectations, thanks to lower COGS (from lower vaccine sales), while SG&A and R&D spending came above
- 2021 guidance raised:
- Revenue raised to $91.3B -$92.1B (+9.5%-10%) from $90.6B-$91.6B, excluding sales from the vaccine. We think there is room for further improvement as the raise was pretty conservative following Q2 beat
- 2H outlook: in medtech: management does not expect a linear recovery going forward due to uptick in covid cases. They are seeing some hospitals beginning to defer care due to recent rise in numbers
- EPS guidance raised to $9.60-$9.70 from $9.42-$9.57, this is helped by below the line items like taxes, and non-operating income
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