Johnson & Johnson Stock (JNJ) Bulls Target Breakout Despite Looming Patent Cliff

Business Insider

22-07-2025

Johnson & Johnson (JNJ) stock is gaining momentum this week following last week's impressive second-quarter 2025 earnings report. While many large pharmaceutical firms are grappling with 'patent cliffs'—the loss of exclusivity for blockbuster drugs—Johnson & Johnson is defying the trend thanks to its well-balanced portfolio of pharmaceuticals and medical devices.
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What truly stood out wasn't just the strong quarterly performance but also management's upgraded outlook for the full year. The company raised its revenue forecast by $2 billion and bumped up its adjusted EPS guidance by $0.25, signaling confidence in its ability to navigate the looming STELARA patent expiration. With this shift, I believe the stock is poised to break out of its five-year stagnation, reinforcing my Bullish stance.
Q2 2025 Performance Hits Top Gear
A deeper look at Johnson & Johnson's Q2 earnings reveals solid growth, with global sales reaching $23.7 billion—up 5.8% year-over-year—and net earnings climbing 18.2% to $5.5 billion. According to TipRanks data, the company clearly fits the definition of a 'cash cow,' having generated $6.2 billion in free cash flow during the quarter.
While it carries a net debt of $32 billion (with $19 billion in cash and $51 billion in total debt), that burden is offset by its strong cash flow, underscoring the company's fundamentally sound financial position.
Johnson & Johnson Looks Beyond STELARA
Although STELARA's quarterly sales dropped 42.7% year-over-year to $1.65 billion, Johnson & Johnson more than made up for it with strong performance across other areas of its pharmaceutical portfolio. The standout gains came from its Oncology and Neuroscience segments.
In Oncology, therapies like DARZALEX and CARVYKTI drove notable growth, with CARVYKTI—a cutting-edge CAR T-cell treatment—more than doubling its sales year-over-year to $439 million in the high-potential multiple myeloma market.
On the Neuroscience front, CAPLYTA generated an impressive $211 million in sales, exceeding expectations. Johnson & Johnson acquired the drug through its $14.6 billion purchase of Intra-Cellular Therapies in April this year.
As an FDA-approved treatment for bipolar depression and schizophrenia, CAPLYTA stands out as a differentiated atypical antipsychotic. With potential supplemental approvals on the horizon—for schizophrenia relapse prevention and adjunctive use in major depressive disorder—its total addressable market could expand significantly.
MedTech Serves as Supplemental Revenue Stream
Johnson & Johnson's medical devices division continues to show steady momentum, with global sales rising 6.1% year-over-year to $8.5 billion, according to TipRanks data. The standout performer was Cardiovascular surgery, which saw 22% growth—largely fueled by strong demand for the company's electrophysiology products and the Impella heart pump.
Although the MedTech segment isn't as high-margin as the Innovative Medicines division, it plays a vital role in diversifying the company's revenue streams. Medical devices carry different risk profiles compared to pharmaceuticals, and in that sense, Johnson & Johnson benefits from having its bets spread across distinct sectors.
Mitigating the Impact of Trump's Tariffs
The company's progress occurs amid a macroeconomic environment that affects every business. However, Johnson & Johnson appears more resilient than others. It slashed its estimate for the impact of tariffs in 2025 from $400 million to around $200 million, primarily due to supply chain optimization.
In the long run, Johnson & Johnson has committed to a $55 billion investment over the next three years to increase its U.S. manufacturing capacity and has declared its intention to manufacture all U.S.-prescribed medicines in the U.S. to mitigate future disruptions from trade wars and tariffs.
Potential Risks and Headwinds on JNJ's Radar
That said, it's essential to acknowledge the risks. Johnson & Johnson continues to face ongoing litigation related to its talc-based products. While it has already paid several billion dollars in settlements, additional liabilities could still arise.
On the macroeconomic front, cost pressures are weighing on profitability, as evident in the MedTech segment, where margins declined from 25.7% to 22.2%. Competition remains intense across both business units, with major players like Medtronic (MDT), Abbott (ABT), and Pfizer (PFE) posing constant challenges.
Lastly, the company's ability to maintain momentum hinges on the continued success of its newer drugs, which must offset the revenue decline from STELARA's loss of exclusivity.
Is JNJ a Good Stock to Buy Now?
On Wall Street, JNJ carries a Moderate Buy consensus rating based on eight Buy, ten Hold, and zero Sell ratings in the past three months. JNJ's average stock price target of $176.35 implies an upside potential of ~8% over the next 12 months.
Just last week, Goldman Sachs analyst Asad Haider reiterated a Buy rating on Johnson & Johnson, citing strong second-quarter results as a key driver of his optimism. Haider noted that the company's decision to raise its 2025 guidance signals confidence in its outlook, with expected growth in both operational and reported revenues.
He pointed to the continued strength of the Innovative Medicines division—particularly with standout products like Tremfya, Carvykti, and Darzalex—as effectively countering headwinds from Stelara's biosimilar competition. According to Haider, this positive momentum in earnings and sales forecasts positions JNJ ahead of both peers and the broader market.
JNJ Prepares for Bullish Upside Without STELARA
Johnson & Johnson is managing the STELARA patent cliff with notable poise. Strength in its Neuroscience and Oncology portfolios is helping to offset the declines in its legacy Immunology segment. At the same time, its dependable MedTech division continues to provide a stable foundation.
Looking ahead, the company's ambitions are bold. It aims for $50 billion in annual oncology sales by 2030, driven by established therapies like CARVYKTI and promising pipeline candidates, such as TAR-200, for bladder cancer.
While risks remain, many appear already priced into the stock. With a P/E ratio of 17.4—representing a 34% discount to the healthcare sector median —JNJ looks attractively valued. A successful transition beyond STELARA could lift a huge weight off its shoulders and trigger a meaningful price breakout. Add in a solid 3.07% dividend yield, and there's a compelling case to be made: Johnson & Johnson offers a lot of value at a very reasonable price.