Johnson & Johnson Q2 Profit Plunges Over 35% as COVID-19 Hurts Sales; Analysts Still Optimistic

Johnson & Johnson, well known for consumer products like Band-Aids, reported that its earnings fell more than 35% in the second quarter as hospitals and patients deferred urgent purchases of medical devices due to the ongoing COVID-19 pandemic slowdown.

The world’s largest and most comprehensive manufacturers of healthcare products, said its net earnings fell to $3.63 billion, or $1.36 a share, compared with $5.61 billion, or $2.08 a share a year earlier.

Johnson & Johnson reported sales of $18.3 billion reflecting a decline of 10.8%, operational sales decline of 9.0% and adjusted operational decline of 8.8%, primarily driven by the negative impact of the COVID-19 pandemic.

The company, which is expected to start human trials of the COVID-19 vaccine this month, upgraded its full-year adjusted profit forecast to $7.75 to $7.95 a share, from its previous forecast of $7.50 to $7.90 a share.

Executive comment

“Our second-quarter results reflect the impact of COVID-19 and the enduring strength of our Pharmaceutical business, where we saw continued growth even in this environment,” Alex Gorsky, Chairman and Chief Executive Officer said in a press release.

“Our global footprint and our sophisticated supply chain technology to deliver on our commitment to provide the vaccine on a not-for-profit basis for emergency pandemic use, globally. We know the need is urgent, and every day we commit to doing our part to find a solution for the global good.”

Johnson & Johnson stock forecast

Eight analysts forecast the average price in 12 months at $169.33 with a high forecast of $182.00 and a low forecast of $160.00. The average price target represents a 14.21% increase from the last price of $148.26. From those eight, five analysts rated ‘Buy’, three rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $170 with a high of $204 under a bull scenario and $110 under the worst-case scenario. Johnson & Johnson had its target price raised by Barclays to $182.00 from $173.00. Several other equity research firms have also updated their outlook.

Credit Suisse maintained a “Buy” rating and issued a $161.00 price target. Citigroup lifted their price target on shares of Johnson & Johnson from $150.00 to $165.00 and gave the company a “buy” rating.

We second Morgan Stanley and Barclays on Johnson & Johnson stock outlook. We also think it is good to buy at the current level and target at least $170 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Litigation liability has been more than reflected in Johnson & Johnson shares, in our view, creating a meaningful valuation disconnect vs. the S&P. Pharma-driven acceleration is poised to drive the multiple higher in 2020 led by blockbuster franchises, pipeline launches and easing comparables. Momentum in MD&D and Consumer segments should drive a more balanced growth profile which is less reliant on Pharma,” said David Lewis, equity analyst at Morgan Stanley.

“Our price target of $170 for Johnson & Johnson is based on a ~19.0x multiple off of our base case 2021e EPS, supported by our SOTP analysis. We assume J&J trades at an in-line multiple with S&P 500 given defensive-oriented profile, growth acceleration in Pharma, and improving fundamentals in Consumer/MD&D, balanced by litigation overhang,” he added.

Upside and Downside risks

Pharmaceutical growth accelerates to the HSD sustainability; Opioid and talc litigations are settled and MD&D growth accelerates, Morgan Stanley highlighted as upside risks to Johnson & Johnson.

Litigation overhang persists / legal liabilities are greater than anticipated; Pharma pipeline is unable to offset biosimilar and competitive risks; COVID-19 impact to MD&D is more severe and Turnarounds in Consumer and MD&D fail to materialize or slower than expected, Morgan Stanley highlighted as downside risks.