On July 17, Johnson & Johnson (NY: JNJ) announced the results in the second quarter that gave investors to look forward to. The introduction of newly available medical technologies plus the future expansion of patent-protected drugs will help push the needle of the healthcare conglomerate for years to come.
Johnson & Johnson is made of many parts that do not move in the same direction. Remicade, Imbruvica, and Zytiga are three blockbuster drugs in the company’s drug lineup that are losing out to new competition.
When does Johnson & Johnson pay dividends? Let’s take a look at their strength and ability to face the challenges they face to find out.
Reasons to buy Johnson & Johnson now
By 2023, the company has spun off the consumer goods division that housed the brands most people associate with the century-old company. Now that Johnson & Johnson has aligned itself with selling pharmaceuticals and medical technology, its growth rate may shift into higher gear.
Second quarter results suggest a faster-than-normal growth rate next year. US drug sales rose 8.9% year over year to $8.5 billion, led by Carvykti, a blood cancer treatment approved in 2022, and Erleada, a prostate cancer treatment that was launched in 2018.
In the first half of 2024, Erleada sales rose 28%, and Carvykti sales rose 82%. These are not the only drugs that boost J&J’s total revenue. Tecvayli, a multiple myeloma treatment to be launched in 2022, made a profit last year from clinical trial results that showed it helped 45% of hard-to-treat myeloma patients to achieve complete forgiveness.
So far in 2024, J&J has submitted applications to regulators in the United States or the European Union (EU) that could lead to an extension or initial approval of six different drugs. The company expects to submit four more applications by the end of the year.
Medical technology sales rose 3.3% in the first half of 2024 or 5.4% at constant currency rates. Management recently lowered its revenue guidance for 2024 to keep up with recent acquisitions including Shockwave, the only maker of intravenous lithotripsy devices approved to treat clogged arteries.
In April, J&J raised its dividend for the 62nd year in a row. At recent prices, the healthcare conglomerate yields 3.2%, which is more than double what you’d get from the average stock in the benchmark. S&P 500 reference.
A reason to be vigilant
Two of J&J’s top earners, Zytiga and Remicade, have lost their patent-protected markets, and sales are declining. Imbruvica still has its uniqueness but is losing ground to competing treatments.
Calquence from AstraZeneca and Brukinsa from BeiGene works along the same lines as Imbruvica. Clinical trial results suggest that these competing treatments are as good or better than J&J’s drugs. That means that revenue could drop as fast as $3 billion a year in the second quarter.
Combined sales from Imbruvica, Zytiga, and Remicade accounted for 5.8% of total revenue in the second quarter. Their continued death will make growth more difficult.
At recent prices, you can take J&J shares to roughly 15 times earnings by the middle of 2024. There’s a lot of room for error. If the J&J market begins to think that the bottom line will hold, investors who bought at the recent price could suffer losses.
Buy now
Given its decades-long track record and steadily increasing medical spending, continued growth from J&J is a reasonable expectation. The new blockbusters that may emerge from the development pipeline position the company for at least ten years of guaranteed growth.
Should you invest $1,000 in Johnson & Johnson right now?
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Cory Renauer has no position in the stocks mentioned. The Motley Fool recommends AstraZeneca Plc and Johnson & Johnson. The Motley Fool has a publishing policy.
Is Johnson & Johnson a buy now? Originally published by The Motley Fool
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