J&J Expects Better Top-Line Growth in 2H: Can It Achieve the Goal?

Globe and Mail

3 days ago

Johnson & Johnson JNJ announced strong second-quarter results earlier this month. The drug and medical device giant beat estimates for both earnings and sales. Despite the loss of exclusivity ('LOE') of its blockbuster drug, Stelara, its Innovative Medicine unit once again outperformed expectations, with sales of all key drugs Darzalex, Erleada and Tremfya beating estimates. The new drugs also contributed significantly to sales. Importantly, its MedTech sales improved from first-quarter levels, driven by strong momentum in Cardiovascular, Surgery and Vision segments despite continued headwinds in China.
But what caught investor attention is the fact that J&J raised its sales expectations for 2025 by around $2.0 billion at the mid-point to reflect a strong operational performance in the first half, coupled with currency tailwinds.
The sales guidance was raised from a range of $91.0 billion-$91.8 billion to $93.2 billion-$93.4 billion. The sales range indicates growth in the range of 5.1%-5.6% versus the prior expectation of 2.6%-3.6%. The adjusted earnings per share guidance was raised from a range of $10.50-$10.70 to $10.80-$10.90, driven by top-line strength, the favorable impact of foreign currency and lowered tariff impact. J&J halved its expectations for tariff-related costs this year from $400 million to $200 million.
J&J expects operational sales growth in both the Innovative Medicine and MedTech segments to be higher in the second half than in the first. Newly launched products should drive better growth in the Innovative Medicine segment in the second half despite the impact of Stelara LOE and Medicare Part D redesign. The growth is expected to be driven by its key products, such as Darzalex, Tremfya, Spravato and Erleada as well as new drugs like Carvykti, Tecvayli and Talvey and new indications, including Tremfya in inflammatory bowel disease indications and Rybrevant in non-small cell lung cancer.
In the MedTech segment, the increased adoption of newly launched products in Cardiovascular, Surgery and Vision is likely to drive growth. However, China will continue to be a headwind in 2025. Sales are expected to be higher in the second half than the first half as the business moves past tougher first-half comps and new products gain momentum throughout 2025.
We believe that J&J should be able to maintain the strong momentum of the first half in the second half. In fact, J&J expects growth to accelerate from 2026.
ABBV & BMY Also Raise Guidance
Other drugmakers that also raised their financial outlook for the year, along with their second-quarter results, are AbbVie ABBV and Bristol-Myers BMY. ABBV raised its full-year 2025 EPS guidance to $11.88-$12.08, up from its prior $11.67-$11.87 range.'
Bristol-Myers raised its annual revenue guidance to $46.5-$47.5 billion from $45.8-$46.8 billion. BMY, however, cut its EPS outlook due to IPRD charges related to its recent deal with BioNTech BNTX for the global co-development and co-commercialization of BNTX's investigational bispecific antibody BNT327 across numerous solid tumor types.
JNJ's Price Performance, Valuation and Estimates
J&J's shares have outperformed the industry year to date. The stock has risen 17.6% in the year-to-date period against a 3.3% decrease of the industry.
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From a valuation standpoint, J&J is slightly expensive. Going by the price/earnings ratio, the company's shares currently trade at 15.0 forward earnings, slightly higher than 14.29 for the industry. The stock is, however, trading below its five-year mean of 15.68.
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The Zacks Consensus Estimate for 2025 earnings has risen from $10.62 per share to $10.86 over the past 30 days, while that for 2026 has risen from $11.0 to $11.36 over the same timeframe.
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J&J has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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