Johnson & Johnson (NYSE: JNJ) finished 2% higher following the company's Q3 report which showed that its Covid-19 vaccine led to an additional $502 million in revenue. The company beat on the bottom line but slightly missed on the top line. However, it did increase its full-year outlook above what analysts were expecting, leading to strength in shares.
Since mid-August, Johnson & Johnson shares have been moving lower along with many healthcare stocks. The biggest culprit is the strength in short-term rates and increasing inflationary pressures which makes companies with a track record and expectations of slow and steady growth less attractive. Further, it also means that Johnson & Johnson's 2.6% dividend is less attractive and makes share buybacks less appealing given the higher cost of borrowing.
Inside the Numbers
In Q3, Johnson & Johnson reported $2.60 in adjusted earnings per share, beating consensus expectations of $2.35 per share. Revenue came up just short of expectations at $23.3 billion vs $23.7 billion. Overall, this was a 27% increase in revenue and a 73% increase in earnings compared to last year's Q3. However, one factor is that last year's sales of medical devices plunged due to many hospitals prioritizing the coronavirus over elective surgeries.
Equally important, the company increased its full-year guidance to between $9.77 and $9.82 per share, from its previous range of $9.60 to $9.70 per share. It also hiked its revenue forecast to $94.1 billion to $94.6 billion, from the previous range of $93.8 billion to $94.6 billion. For the full year, J&J expects the Covid vaccine to bring in $2.5 billion which is in line with expectations and previous guidance.
J&J is a massive, diversified company that has exposure to multiple segments within the broad healthcare industry. There was strength across the board especially compared to last year. Some of the areas contributing to the strong earnings results were consumer health, pharmaceutical, and medical devices.
The consumer unit generated $3.7 billion in revenue, a 5% increase from last year. The pharmaceutical business generated $12.9 billion in revenue, a 12% increase from last year, primarily due to the vaccine. Medical device revenue was 8% higher and came in at $6.6 billion in total.
Another potential catalyst for the stock is the FDA recommending boosters of Johnson & Johnson's coronavirus vaccine which means that the vaccine should drive growth next year as well.
Stock Price Outlook
Johnson & Johnson is one of the premier, healthcare companies in the world. It also has a long track record of paying and hiking its dividend. This means that J&J is always a good choice for an investment portfolio and should always be considered when it's down more than 10% as it is since August.
The company remains quite attractive from a valuation angle with its forward P/E of 15.7 which is below the S&P 500. Further, many analysts expect revenue growth of more than 10% in 2022 which would be more than the S&P 500. While, the stock could underperform if short-term rates rise, while inflationary pressures continue to build, any weakness should be treated like a buying opportunity.