Johnson & Johnson (NYS:JNJ) has long been viewed as a bellwether stock for other health care companies, given its early slot in the earnings calendar and a business model that spans everything from hip implants to rheumatoid arthritis drugs and Band-Aids.
Next Tuesday, when the company is set to reveal its fourth-quarter performance, investors will also be paying attention to what Joaquin Duato, a longtime J&J exec who became CEO earlier this month, has to say about the direction of the company.
Duato replaces Alex Gorsky, who started his career as a J&J sales rep before he was named CEO in 2012. Gorsky succeeded Bill Weldon as CEO back when the company was in the midst of quality issues with several products including Tylenol and metal-on-metal hip implants that had tarnished J&J’s once-sterling brand. (Gorsky remains executive chair of the board.)
The company’s stock has steadily risen over the last decade, hitting a 10-year high of $179.47 on Aug. 17, compared with a 10-year low of $61.78 on June 1, 2012.
“I would like investors to think that we are evolving,” Duato said Jan. 10 at the virtual J.P. Morgan Healthcare Conference, according to a FactSet transcript of the meeting.
J&J announced in November that it is planning to split into two publicly traded companies: one focusing on consumer health, and the other housing its prescription-drug and medical-device businesses. (“Pharma remains J&J’s strongest segment,” Raymond James analyst Jayson Bedford told investors in November.) The split isn’t expected to happen until the end of 2023.
Duato also told investors that the pandemic sped up trends like same-day delivery within the consumer health business. This likely further differentiates the consumer health shop from the traditional pharma and device businesses.
But that’s not the only way the pandemic is affecting the company’s business.
Medical-device sales have ebbed and flowed depending on the state of the pandemic because many of the products sold are used in elective medical procedures. When hospitals get overwhelmed with COVID-19 patients, they sometimes have to reduce or stop elective surgeries.
“While COVID impacts have disrupted the entire medtech market, and we saw more of that disruption in Q4 with the omicron variant, as I’m sure, many of the medical device companies are going to comment on, we have been steadfast that even in the COVID circumstances, our goal has been to be able to continue to enhance our competitiveness,” Duato said during the J.P. Morgan conference.
That said, expect to see deals from a J&J under the leadership of Duato, who called “external innovation or M&A” a key part of the company’s growth in pharmaceuticals and medical devices. (The company prefers small- and medium-size deals so that it can apply its own commercial and manufacturing expertise. “That has been the secret sauce of Johnson & Johnson,” Duato said at the event. “But are we open to [large deals]? Yes. Do we have the financial muscle to be able to perform then? Absolutely, yes.”)
J&J’s COVID-19 shot has largely fallen out of favor in the U.S., making up less than 4% of the total doses administered here. The majority of people in the U.S. have been immunized with the BioNTech SE (NAS:BNTX) /Pfizer Inc. (NYS:PFE) and Moderna Inc. (NAS:MRNA) shots.
Here’s what to watch in J&J’s earnings:
Earnings: The consensus estimate of analysts polled by FactSet is for earnings per share of $2.15, up from 66 cents per share last year.
Estimize, which crowdsources estimates from a range of parties, including buy and sell side investors, academics, students and more, is expecting EPS of $2.31.
Sales: Expect sales of $25.3 billion in the fourth quarter of 2021, according to FactSet, up from $22.5 billion a year ago. This breaks out to $3.7 billion in consumer health sales, $14.5 billion in pharmaceutical sales, and $6.9 billion in revenue from the medical-device business.
Estimize is expecting sales of $25.2 billion.
Stock: J&J’s stock is up 2.6% over the past year, while the S&P 500 has gained about 21.4% since this time last year.