Summary
- Johnson & Johnson's stock dropped somewhat after its earnings announcement. The company beat analysts' estimates but the market reacted to the bad Covid-19 vaccine news.
- I do not think the vaccine news is a blow to the company's future profitability.
- Johnson & Johnson is a wonderful company, which does not look expensive compared to the overall stock market.
Johnson & Johnson's (JNJ) stock did not do particularly well after the company's earnings announcement even though it beat consensus estimates. The reason for such a strange investor reaction was the fact that Johnson & Johnson paused its coronavirus vaccine trial. I would like to discuss the company's earnings, its most recent news and the stock's valuation.
Johnson & Johnson's earnings
One of my Seeking Alpha colleagues argued the company's earnings were not brilliant. The earnings estimates were already quite depressed and easy to beat. It sounds logical. However, if we compare the operational results announced on October 13 to the ones reported for the same quarter a year ago, they look quite impressive, given the coronavirus impact. The sales revenue growth rate of 1.7% is not fantastic on its own, of course. However, the company had to face many operational problems and falling demand for some of its products due to the pandemic.
Source: Johnson & Johnson's earnings presentation, page 6
The biggest problem still seemed to be the medical devices department. However, in contrast to where the department's results were in the second quarter of 2020, there is clearly a material improvement. In the second quarter of 2020, the operational sales in the department declined by 25% in many countries and regions. The US decline even totaled 40%. This was mainly due to the lockdown since many patients were unable to visit hospitals to undergo certain medical procedures. In the third quarter, the demand for medical devices did not reach pre-pandemic levels either. However, the results clearly showed signs of improvement. For example, in China, the growth rate even totaled 17%.
The pharmaceutical and consumer health sectors grew very well. It was especially true of pulmonology hypertension drugs. The demand for these rose due to the impact of the Covid-19. The disease affects people's breathing abilities. So, pulmonology drugs are particularly relevant in this situation. Overall, it seems to be clear that the pharmaceutical and consumer health divisions helped to offset losses from the medical devices department.
