Earnings Preview: Here’s what to expect from Johnson & Johnson’s Q2

Healthcare conglomerate Johnson & Johnson (NYSE: JNJ) entered a new phase recently after spinning off its consumer business. The move is part of the efforts to rejuvenate the business that experienced a slowdown during the pandemic and faces legal challenges over the safety of certain consumer products. The company will be publishing its second-quarter results next week.

Valuation

Recently, Johnson & Johnson’s board raised the dividend by 5.3%, marking the 61st consecutive hike. That translated into an increase in the forward dividend yield to a bigger-than-average 3%. The stock’s performance has not been very impressive so far this year, as it mostly traded below the 12-month average. However, JNJ looks poised to gather steam in the coming months and grow in double-digits through mid-2024.

The company has carved a niche for itself in the pharma and consumer care market, with a good track record of creating shareholder value. While the valuation looks a bit high, JNJ is a relatively safe stock for the long term. Moreover, the management’s growth strategy is focused on continued innovation and the company has a promising pipeline. Earlier this month, the Janssen subsidiary reported positive topline results from an advanced study evaluating the first and only oral interleukin-23 receptor antagonist peptide JNJ-2113 for the treatment of plaque psoriasis.

Kenvue Spin-off

The recent separation of the consumer division elicited great interest among stakeholders as it is expected to make both Johnson & Johnson and Kenvue more agile and efficient. The fact that the company is facing multiple lawsuits for alleged safety issues related to its talc-based personal care products adds to the significance of the split.

When the company reports second-quarter results on July 20 in the morning, the market will be looking for a modest increase in earnings and revenues. Adjusted profit is estimated to have increased to $2.62 per share from $2.59 per share last year. The consensus revenue estimate is $24.66 billion, up 2.7%.

Earnings Beat

Johnson & Johnson has generated stronger-than-expected quarterly earnings consistently for more than a decade, an achievement probably no other company could match. In the most recent quarter, which ended in March 2023, earnings remained unchanged at $2.68 per share, while sales grew by 6% to $24.7 billion and topped expectations. The core Pharmaceutical division expanded by 4%, while sales increased across all geographical segments except Asia & Africa.

Speaking to analysts after the first-quarter earnings release, Johnson & Johnson’s CFO Joseph Wolk said, “The results reflect the strength and versatility of Johnson & Johnson and our commitment to improving healthcare outcomes around the world. 2023 has many important catalysts that can drive meaningful near and long-term value for Johnson & Johnson shareholders. We remain focused on the successful separation of our Consumer Health business, Kenvue, which will position both companies to be more agile, focused, and competitive. We are also expecting a number of pipeline advancements that will provide increased confidence in our Pharmaceutical and MedTech businesses.”

JNJ opened Friday’s session slightly below $160 and traded higher throughout the day. In the past six months, the stock lost about 8%.