Summary
- Johnson & Johnson reports an impressive Q1 and hikes the dividend.
- The company's diversified profile makes it particularly resilient, even through a pandemic.
- JNJ's COVID-19 vaccine development lags but its superior manufacturing capabilities leave it well-positioned to lead a ramp to 1bn doses by 2021.
- At ~19x P/E, JNJ offers investors resilience at a reasonable price.
Amid the COVID-19 pandemic, Johnson & Johnson (JNJ) stands out. Not only has J&J demonstrated sound capital allocation decisions with its healthcare portfolio, but its fortress balance sheet and dividend yield make J&J a defensive stock to own amid the uncertainty. J&J's strong quarter highlighted the bull case, along with a comprehensive framework for 2020. The outlined range of potential outcomes based on the available facts today was particularly noteworthy at a time when most companies are outright pulling their guidance and should thus, help reduce the level of uncertainty facing JNJ. Overall, at ~19x P/E, a well-supported ~3% expected dividend yield, and the path toward earnings growth intact from 2021, I rate JNJ a Buy.
Encouraging 1Q Results Offset Lowered Guidance
For the quarter, JNJ reported above-consensus sales of $20.7bn (+3.3% YoY) and headline (adjusted) EPS of $2.30, reflecting operational growth (excluding currency impact) of 4.8%. Adjusted for M&A, operational growth would have been even higher at 5.6%.
Source: Investor Presentation
The top-line strength was broad-based - a result of stronger-than-expected pharma results (particularly Stelara), a more modest 1Q impact on the Medical Devices business from COVID-19, as well as strong OTC pharma results. The business mix remains largely geared toward pharmaceuticals, with medical devices and consumer contributing ~24% and ~25% to sales, respectively, on a pre-tax basis.
Source: Investor Presentation
Consumer Health worldwide operational sales grew ~11%, on the back of strength across the OTC product portfolio, including Tylenol and Motrin. The segment was a net beneficiary of COVID-19, seeing increased demand.
Source: Press Release
Pharmaceutical worldwide operational sales also rose strongly by ~10%, driven by key drugs such as Stelara, Darzalex, and Imbruvica. Growth was partially offset by increased competitive intensity in the biosimilar and generic space, particularly with international Velcade, Remicade, and Procrit.
Source: Press Release
The Medical Devices segment was the relative underperformer, with operational sales worldwide declining by 4.8%, as the COVID-19 pandemic led to medical procedure deferrals.
