What To Expect From Johnson & Johnson In Q2?

UKRAINE – 2021/02/05: In this photo illustration a Johnson & Johnson logo is seen displayed on … [+] mobile phone and pc screen. Johnson & Johnson (J&J) has asked regulators to authorize their COVID-19 vaccine for emergency use in the U.S. and also will apply to authorize to EU, reportedly by media. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images

Johnson & Johnson stock (NYSE: JNJ) is scheduled to report its Q2 2021 results on Wednesday, July 21. We expect J&J to report revenues and earnings slightly above the consensus estimates. The pharmaceuticals sales will likely be driven by market share gains for its cancer drugs – Imbruvica and Darzalex. The Medical Devices business will also see a rebound from the lows of the last year quarter, which saw postponement of elective surgeries due to lockdowns and increased focus of healthcare institutions on treating the Covid-19 patients. We expect the company to navigate well based on these trends over the latest quarter.

After J&J’s single-dose Covid-19 vaccine rollout in the U.S. in early March 2021, it faced headwinds due to manufacturing challenges and reports of a few people developing serious blood clots. However, the company is now making progress with its rollout, especially in the international markets. That said, it doesn’t add much value to the stock, given that it is a not-for-profit product. Our analysis on J&J Vaccine Updates provides more details.

Overall, we believe that oncology and immunology drugs along with a rebound in medical devices business will be the key growth driver for J&J in Q2. Not only do we believe J&J will post Q2 results slightly above the street expectation, JNJ stock remains attractive at the current levels. Our forecast indicates that J&J’s valuation is around $192 per share, which is 14% higher than the current market price of around $168. Our interactive dashboard analysis on Johnson & Johnson Pre-Earnings has additional details.

(1) Revenues expected to be slightly above the consensus estimates

Trefis estimates J&J’s Q2 2021 revenues to be around $22.3 Bil, slightly above the $22.2 Bil consensus estimate. J&J in Q2 2020 saw a significant decline in medical devices revenue, due to deferment of elective surgeries given the spread of Covid-19. Now that nearly half of the U.S. population is fully vaccinated, and on the international front, most of the countries have undertaken large-scale vaccination programs, the healthcare institutions now have more resources to address the surgeries that were postponed earlier, and people are also more confident heading out, compared to the lockdowns in Q2 last year, implying a rebound for J&J’s medical devices business. In fact, the company’s medical devices revenue was also up 11% in Q1 this year.

Looking at the pharmaceuticals business, the company’s three drugs – Stelara, Imbruvica, and Darzalex – garnered $16 billion in sales in 2020, or one-fifth of the company’s total revenues. These drugs will likely remain the key growth driver for J&J in Q2 as well. Our dashboard on Johnson & Johnson Revenues offers more details on the company’s segments.

2) EPS likely to be above the consensus estimates

J&J’s Q2 2021 adjusted earnings per share is expected to be $2.30 per Trefis analysis, modestly above the consensus estimate of $2.27. J&J’s adjusted net income of $6.9 Bil in Q1 2021 reflected a 12% y-o-y increase. This can be attributed to over 130 bps rise in net margins. As the company sees a rebound in sales, the margins are expected to improve, bolstering the overall earnings growth in 2021. For the full-year 2021, we expect the adjusted EPS to be higher at $9.56 compared to $8.03 in 2020.

(3) Stock price estimate 14% higher than the current market price

EPS
Trefis

Going by our Johnson & Johnson’s Valuation, with an EPS estimate of around $9.56 and a P/E multiple of around 20x in 2021, this translates into a price of $192, which is 14% above the current market price of around $168. At current levels of $168, JNJ stock is trading at under 18x its expected EPS of $9.56 in 2021, compared to levels of 20x seen as recently as late 2020, implying there is more room for growth for JNJ stock.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

While JNJ stock may be undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Johnson & Johnson vs Regeneron Pharmaceuticals.

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