Johnson & Johnson deserves more credit for another healthy quarter and strong guidance

Published Tue, Jan 24 20234:32 PM ESTUpdated Wed, Mar 8 20232:16 PM EST

Johnson & Johnson (JNJ) posted another solid quarter of healthy growth — and another productive year of free-cash-flow generation — despite a slight miss on sales. The health-care company and Club holding on Tuesday reported sales for the fourth quarter of $23.706, down 4% from a year earlier and missing the $23.706 billion consensus estimate provided by Refinitv. On an adjusted operational basis, which excludes the impact of acquisitions and divestitures and currency, sales rose 0.8%. Adjusted diluted earnings-per-share was $2.35, up more than 10.3% from a year ago and a solid beat on the Street estimate of $2.23. Bottom line JNJ was a resilient performer in 2022, with shares of the drug maker squeaking out a small gain despite the broader market sell-off. But the new year has been tough on pharmaceutical stocks and almost all of health care, including JNJ stock, which is down 6% year to date. This move is not an indictment of the company's operations. Rather, it's about investors favoring higher multiple stocks and companies with more cyclicality following a year where defensive names outperformed. It's surprising to see JNJ not get any credit today for guiding 2023 earnings-per-share nearly $0.20 above estimates, but that might be the opportunity here. We continue to appreciate the growth of JNJ's Pharma and MedTech business as well as the consistency of the Consumer franchise and look forward to the breakup later this year. ( The company is preparing to spin off its consumer health unit into a publicly traded company separate from its pharmaceutical and medical technology operations.) In the near term, we're being patient with the stock while it is out of favor and will look to opportunistically add to our position as the stock price comes down. Over the longer term, the breakup will be a big win for shareholders. Guidance Some analysts had been tweaking lower their estimates for 2023 after CEO Juaquin Duato gave a cautious presentation at the JPMorgan Healthcare conference in early December of last year. Revenues appear to be appropriately calibrated, with management forecasting reported sales growth of 4.5% to 5.5% year over year to the range of $96.9 billion to $97.9 billion. The midpoint of $97.4 billion is slightly below the consensus estimate of $97.754 billion. This outlook includes no impact from foreign exchange. But adjusted earnings look great. Johnson & Johnson forecasts adjusted EPS on an operational basis to grow 2.5% to 4.5%, which at a midpoint of $10.50 compares favorably to the consensus of $10.33. Product segments Pharmaceu