Johnson & Johnson stock (NYSE: JNJ) is scheduled to report its Q4 2021 results on Tuesday, January 25. We expect J&J to report revenues and earnings above the consensus estimates. The pharmaceuticals sales will likely be driven by continued market share gains for its cancer drugs, Imbruvica and Darzalex, and immunology drugs, Stelara and Tremfya. However, the company is unlikely to see any meaningful contribution from its Covid-19 vaccine.
The Medical Devices business is likely to see higher sales growth with a rise in total procedures volume, though the rise in Covid-19 cases due to the spread of Omicron since December may have impacted the overall segment revenue growth. Not only do we believe J&J will post Q4 results slightly above the street expectations, but we also find JNJ stock to be attractive at the current levels, and it is likely to rise post Q4 results.
1) Revenue expected to beat the consensus estimate:
*Trefis estimates J&J’s Q4 2021 revenues to be around $25.7 billion, reflecting a 14% y-o-y growth. This compares with the $25.3 billion consensus estimate.
*While J&J’s medical devices business faced headwinds in 2020, owing to the impact of the pandemic, it has seen a rebound over the recent quarters. This trend likely continued in Q4 as well, with the economies opening up gradually, and procedures volume rising. Medical devices revenues were up 7% to 6.6 billion in Q3, and they were up 15% for the nine months ending September 2021.
*Economic recovery also bodes well for the company’s consumer healthcare business, which grew 5% both in Q3 and for the nine months ending September 2021. The company saw an increased demand for vaccination symptom relief products, such as Tylenol and Motrin, and higher sales for its cough, cold, and flu brands, including Imodium in Q3, and this trend likely continued in Q4 as well.
*Looking at the pharmaceuticals business, the company’s three drugs – Stelara, Imbruvica, and Darzalex – garnered $14.5 billion in sales in the first nine months of 2021, or 21% of the company’s total revenues.
*These drugs will likely remain the key growth driver for J&J in the near term, along with its relatively new drug – Tremfya – which garnered $1.4 billion in sales for the nine months ending September 2021, reflecting a large 48% y-o-y growth.
2) EPS likely to be above the consensus estimates:
*J&J’s Q4 2021 adjusted earnings per share (EPS) is expected to be $2.14 per Trefis analysis, slightly above the consensus estimate of $2.12. J&J’s adjusted net income of $7.0 billion in Q3 2021 reflected a 19% y-o-y increase.
*This can be attributed to higher revenues, and around 200 bps rise in net margins.
*As the company sees continued sales growth, the margins are expected to improve, especially for its medical devices business. That said, there can be near-term margin pressure due to inflationary headwinds and supply chain constraints.
*The pharmaceutical business margins may be impacted by continued investment in R&D while consumer healthcare margins are expected to improve.
3) Stock price estimate 20% higher than the current market price:
*Going by our Johnson & Johnson’s Valuation, with an EPS estimate of around $9.81 and a P/E multiple of around 21x in 2021, this translates into a price of $202, which is 20% above the current market price of around $167.G This compares with levels of 20x seen for the P/E multiple as recently as late 2020.
*Looking at P/EBITDA ratio, our price estimate of $202 is based on P/EBITDA multiple of 17x based on Johnson & Johnson EBITDA for the last twelve months.
Johnson & Johnson Long (Buy)
Enter at: 169.29