JNJ Preview: Can J&J regain its mojo with a beat and raise?

Johnson & Johnson (JNJ) is set to report its Q3 2024 earnings on October 15, before the market opens, with analysts expecting adjusted EPS of $2.21 and revenue of $22.17 billion. JNJ typically provides full-year guidance, and for 2024, it has projected revenue growth of 4-5.2%, or $88.0-88.4 billion, and adjusted EPS guidance of $9.97-10.07. Last quarter, JNJ surpassed EPS and revenue expectations, driven largely by strong performance in its Innovative Medicine segment, particularly in its oncology portfolio, although it lowered its EPS outlook due to the impact of acquisitions like Shockwave Medical.

Shares of JNJ have pulled back from 52-week highs and slipped below the 20- and 50day moving averages ($162). This will be a key level for traders to watch after it posts results. If JNJ surprises to the upside and reaffirms its FY24 outlook, then we would expect it to hold this area as support. A failure to break above it would raise a red flag fpor investors.

In Q2, JNJ’s Innovative Medicine segment saw significant growth, with multiple myeloma treatments such as DARZALEX leading the way, showing 21.3% growth. The MedTech segment posted a 4.4% increase in worldwide sales, driven by new product introductions and strong procedure volumes, although growth was partially offset by challenges in China and competitive pressures. The cardiovascular division performed well, with electrophysiology sales growing by 13.4%. Investors will be looking to see if these trends continue into Q3.

Analysts typically expect JNJ to deliver an earnings beat, as the company has a strong track record of surpassing EPS estimates. However, revenue performance can be more variable. RBC projects Q3 revenue of $22.09 billion and EPS of $2.19, in line with consensus, with a slight drop in operating margins due to a $1.25 billion charge related to the Numab transaction. Investors will also be monitoring how recent deals, including the Gilead transaction, impact JNJ's overall financials and future guidance.

On September 4, the Wall Street Journal reported Johnson & Johnson is nearing broader support for its $9 billion talc settlement plan after increasing its offer by $1 billion. The new terms have swayed a prominent adversary, lawyer Allen Smith, who represents around 12,000 claimants. With Smith's endorsement, J&J is expected to gain roughly 90% of the votes needed to move forward with the settlement, which compensates women alleging that J&J's talc baby powder caused gynecological cancer. J&J needs at least 75% of claimants to approve the plan for it to be eligible for bankruptcy court approval.

In Q2, Johnson & Johnson's (JNJ) Innovative Medicine segment outperformed its MedTech segment, driven largely by strength in its oncology portfolio. This helped the company surpass EPS expectations, though JNJ lowered its FY24 EPS guidance to $9.97-10.07 from $10.57-10.72 due to the impact of acquisitions, notably its $13 billion acquisition of Shockwave Medical. Despite the guidance cut, investors largely overlooked this since it wasn't tied to operational results, and JNJ reaffirmed its FY24 revenue guidance of $88.0-$88.4 billion, boosting investor sentiment.

MedTech's performance was underwhelming, with revenue growing by only 2.2% to $7.9 billion, falling short of analysts' expectations. The segment was particularly weighed down by a 4.1% decline in surgical device sales due to supply chain issues, competition, and decreasing demand for bariatric procedures, impacted by the growing use of weight loss drugs. However, the Cardiovascular business provided a bright spot, with revenue rising nearly 16%, largely due to its Abiomed acquisition. Meanwhile, the Innovative Medicine segment saw 5.5% growth, with strong contributions from its oncology portfolio, especially Darzalex, which saw an 18% increase in sales.

Overall, while JNJ's Q2 results were mixed, key areas like oncology and cardiovascular businesses showed strength. Analysts remain optimistic about JNJ's prospects, expecting growth in the MedTech segment in the second half of 2024 and continued focus on immunology, with the launch of new treatments like Nipocalimab in 2025. Despite some near-term challenges, JNJ’s stock gained 3.7% after the earnings report, supported by the company's solid underlying fundamentals.