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On Thursday, Wells Fargo reiterated its Equal Weight rating on shares of Johnson & Johnson (NYSE:JNJ) with a steady price target of $163.00. The firm forecasts that Johnson & Johnson's earnings per share (EPS) growth will likely trail behind its sales growth for the year 2025. This projection is based on the expected impact of the Inflation Reduction Act and the U.S. loss of exclusivity (LOE) for Stelara, a drug that currently yields high margins for the company.
Johnson & Johnson anticipates a minimum of 3% sales growth in 2025, but due to Stelara's significant contribution to profit margins, the company could see a more pronounced effect on EPS. Wells Fargo's analysis suggests an approximate operating margin decline of 75 basis points year-over-year in 2025 because of the Stelara LOE. Consequently, this could result in an EPS increase of less than 3%.
The analysis also takes into account recent mergers and acquisitions by Johnson & Johnson, noting four deals closed in 2024, with the latest being V-Wave. These transactions are expected to dilute EPS by $0.92 in 2024.
A breakdown of this figure indicates that around $0.75 of the dilution is due to in-process research and development (IPR&D) related to NM26 and V-Wave, while the remaining $0.17 stems from additional operational expenses and financing charges. For 2025, the firm estimates an incremental EPS dilution of $0.22.
Wells Fargo has set its 2025 EPS estimate for Johnson & Johnson at $10.43, which includes the additional dilution from the deals made in 2024. Without this dilution, the EPS estimate would be $10.76, suggesting a modest underlying growth of approximately 1.1% over their 2024 ex-IPR&D EPS estimate of $10.54.
The firm also recognizes a potential EPS benefit of $0.05 to $0.06 in 2025 as Johnson & Johnson regained international rights to Remicade and Simponi on October 1, 2024.
The report contrasts its estimates with the consensus forecast, which might not fully account for the dilution from the recent acquisitions, particularly V-Wave. The current consensus EPS estimates are $9.98 for 2024 and $10.72 for 2025, which could imply an underlying EPS growth of 3.7%. Wells Fargo suggests that these consensus expectations might be overly optimistic, especially considering the anticipated impact of Stelara's LOE.
In other recent news, Johnson & Johnson has made significant strides in various areas. The pharmaceutical giant recently completed the acquisition of heart device maker V-Wave Ltd., expanding its cardiovascular portfolio with the addition of the Ventura® Interatrial Shunt for heart failure patients. In terms of earnings, the acquisition is projected to reduce the company's adjusted earnings per share by $0.24 in 2024 and $0.06 in 2025.
In the realm of clinical trials, Johnson & Johnson reported that its drug ERLEADA® demonstrated survival benefits in a prostate cancer study, reducing the risk of death by 23 percent compared to enzalutamide. However, the company halted a mid-stage trial for dengue prevention, marking an end to one of its efforts to combat the disease.
In product expansions, the company rolled out its TECNIS Odyssey intraocular lens across the U.S., aimed at enhancing vision for cataract patients. Johnson & Johnson has also submitted a supplemental Biologics License Application to the FDA for a new indication of its DARZALEX FASPRO® treatment, supported by Phase 3 CEPHEUS study results.
In other developments, Johnson & Johnson's subsidiary, Red River Talc LLC, filed for a prepackaged Chapter 11 bankruptcy as part of a strategy to settle ongoing ovarian cancer claims related to cosmetic talc litigation in the U.S. Lastly, Johnson & Johnson announced the retirement of Executive Vice President and Chief Human Resources Officer, Dr. Peter M. Fasolo, with Kristen Mulholland named as his successor.
InvestingPro Insights
Johnson & Johnson's financial health and market position remain robust despite the challenges highlighted in Wells Fargo's analysis. According to InvestingPro data, the company boasts a substantial market capitalization of $386.72 billion, underscoring its status as a major player in the pharmaceutical industry. This is further reinforced by an InvestingPro Tip noting that J&J is a "prominent player in the Pharmaceuticals industry."
The company's financial stability is evident in its revenue growth, with InvestingPro data showing a 5.13% increase in the last twelve months. This aligns with J&J's own projection of at least 3% sales growth in 2025, as mentioned in the article.
Moreover, J&J's strong dividend history is highlighted by an InvestingPro Tip, which states that the company "has raised its dividend for 53 consecutive years." This commitment to shareholder returns is reflected in the current dividend yield of 3.09%.
While Wells Fargo's analysis points to potential EPS challenges, it's worth noting that J&J's P/E ratio (adjusted) stands at 20.32, which an InvestingPro Tip suggests is "low relative to near-term earnings growth." This could indicate that the market has already priced in some of the concerns raised by Wells Fargo.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide further insights into Johnson & Johnson's financial outlook and market position.
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