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

By:
Vivek Kumar
Published: Jul 16, 2020, 12:41 UTC

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.

Johnson & Johnson stock

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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.

About the Author

Vivek completed his education from the University of Mumbai in Economics and possesses stronghold in writing on stocks, commodities, foreign exchange, and bonds.

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