J&J’s JNJ stock closed at $145.05 on Friday, quite close to its 52-week low of $142.75. In the past three months, J&J’s stock has lost more than 10%.
Slowing sales of J&J’s MedTech segment, the upcoming patent expiration of its blockbuster drug, Stelara and talc-related legal issues are some of J&J’s main concerns. The overall drug and biotech sector saw a major downturn in the second half of the year due to disappointing third-quarter sales and profits, guidance cuts, pipeline setbacks and the appointment of Robert F. Kennedy Jr., a vaccine skeptic, as the head of Health and Human Services. All these factors pulled down the stocks of all large drugmakers.
The decline in J&J’s stock price and the drug/biotech sector’s downturn in the second half have left investors wondering if they should sell J&J stock. Let’s understand the company’s strengths and weaknesses to better analyze how to play J&J stock following the latest dip.
J&J’s Talc Suits and Bankruptcy Attempts
J&J faces more than 62,000 lawsuits for its talc-based products, primarily baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer. J&J insists that its talc-based products are safe and do not cause cancer. The company permanently discontinued the sales of its talc-based Johnson’s Baby Powder.
J&J failed twice in its attempts to seek bankruptcy to fully resolve these thousands of lawsuits related to its talc products. In May 2024, the company proposed a new plan committing to pay claimants approximately $6.5 billion nominally over 25 years, which could resolve 99.75% of all pending talc lawsuits against it.
In September, J&J, via another subsidiary called Red River Talc, filed for voluntary bankruptcy (in Texas) for the third time after it received the support of around 83% of current claimants for the proposed bankruptcy plan. Red River also increased its settlement commitment by $1.75 billion to approximately $8 billion. The talc bankruptcy confirmation hearing is expected to take place in early 2025.
Upcoming Patent Expiration of J&J’s Blockbuster Drug Stelara
J&J will face the patent expiration of its blockbuster drug, Stelara, in 2025. Stelara generated sales of $8.0 billion in the first nine months of 2024. The launch of generics could significantly erode the drug’s sales and hurt J&J’s sales and profits. While a biosimilar version of Stelara was launched in some European markets for certain indications in July 2024, in the United States, biosimilars are expected to be launched in January 2025.
Slowing Sales in J&J’s MedTech Segment
Sales in J&J’s MedTech business are facing continued headwinds in Asia Pacific, specifically in China. Sales in China are being hurt by the impact of the volume-based procurement (VBP) program and the anti-corruption campaign. VBP is a government-driven cost-containment effort in China. Competitive pressure is also hurting sales growth in some MedTech businesses. J&J does not expect any improvement in its business in the Asia Pacific region, specifically in China, in the fourth quarter of 2024. In 2024, J&J expects operational sales in the segment to grow 5%, which is near the lower end of its long-term target of 5%-7%.
It expects continued impacts from VBP issues in China in 2025 as VBP continues to expand across provinces and products.
JNJ’s Innovative Medicine Unit Showing Consistent Strength
J&J’s Innovative Medicine unit is performing at above-market levels. Its growth is driven by existing products like Darzalex, Stelara, Tremfya, Uptraviand Erleada and the continued uptake of new launches, including Spravato, Carvykti and Tecvayli. The segment’s sales rose 6.8% in 2022, 9% in 2023 and 5.6% in the first nine months of 2024 on an organic basis. In 2025, J&J expects to record positive growth in the Innovative Medicine segment despite the loss of exclusivity of Stelara in January. J&J expects the Innovative Medicine business to grow 5-7% from 2025 to 2030.
Moreover, J&J believes 10 of its new Innovative Medicine products, including new cancer drugs like Talvey and Tecvayli and pipeline candidates like nipocalimab and icotrokinra (JNJ-2113), have the potential to deliver peak non-risk-adjusted operational sales of $5 billion.
J&J Stock’s Price, Valuation and Estimates
J&J’s stock has underperformed the industry this year. The stock fell 7.5% year to date against 3.1% growth of the industry. The stock has also underperformed the sector and the S&P 500 index as seen in the chart below. The stock is also trading below its 200-day and 50-day moving averages.
JNJ Stock Underperforms Industry
Image Source: Zacks Investment Research
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its 5-year mean. Going by the price/earnings ratio, the company’s shares currently trade at 13.75 forward earnings, lower than 15.86 for the industry and the stock’s mean of 16.06. J&J’s stock is also much cheaper than other large drugmakers like Eli Lilly LLY and Novo Nordisk NVO
JNJ Stock Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2025 earnings has declined from $10.56 to $10.55 over the past 60 days.
JNJ Estimate Movement
Image Source: Zacks Investment Research
Stay Invested in J&J Stock
J&J’s biggest strength is its diversified business model. With last year’s complete separation of the Consumer Health segment into a newly listed company called Kenvue KVUE, J&J has now become a two-sector company focused on the Pharmaceutical and MedTech fields.
J&J’s Innovative Medicines segment is showing a growth trend. The company has an interesting R&D pipeline that can generate innovative products and drive its growth further. It recently completed acquisitions of Shockwave and V-Wave in MedTech and Ambrx, Proteologix and NM26 bispecific antibody in Innovative Medicine, thus boosting its pipeline.
However, the softness in the MedTech unit is a concern. It remains to be seen if the trends improve in 2025.
Overall, J&J’s outlook for 2025 looks positive. In 2025, the company expects sales in its Innovative Medicine unit to be more than its guidance of $57 billion, which it issued in 2021. In its Innovative Medicine segment, growth is expected to be driven by its key products such as Darzalex, Tremfya, Erleada and others, as well as new drugs and new indications for Tremfya and Rybrevant. In MedTech, J&J expects operational sales growth to be at the upper end of its long-term (2022-2027) guided range of 5-7%, driven by the launch of new products and contributions from Abiomed and Shockwave acquisitions.
Those who already own this Zacks Rank #3 (Hold) company’s shares may stay invested for some time as the visibility for a potential resolution of the talc lawsuits has improved, and J&J looks optimistic for a better performance in 2025. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
