October 20, 2021 8:00 AM
 — 
3
 min

Johnson & Johnson has improved its annual forecast

buy

Johnson & Johnson posted good 3Q results. J&J's quarterly revenue amounted to $ 23.34 billion against $ 21.08 billion a year earlier, with an average market forecast of $ 23.64 billion. Revenue for the consumer health products division increased 5.3% to $ 3.7 billion, beating market consensus. Pharmaceuticals revenue rose 13.8% to $ 12.99 billion. Pharmaceuticals continued to grow above the market average, overcoming lingering COVID-19 exposure and generic headwinds. Medical device revenues rose 8% to $ 6.64 billion, falling short of market expectations. Net income in July-September rose to $ 3.67 billion, or $ 1.37 per share, up from $ 3.55 billion, or $ 1.33 per share, in the same period last year. Earnings excluding one-off factors were $ 2.6 per share, beating the consensus forecast of $ 2.35 per share.

TIKR:
JNJ

PRICE:
$160

TARGET PRICE:
$195

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Strong performance in the third quarter allowed J&J to improve its forecasts for the full year. According to the new forecast, the company's adjusted earnings will be $ 9.77-9.82 per share versus the previous forecast of $ 9.6-9.7 per share. Revenue, taking into account revenues from the sale of vaccines against COVID-19, could reach $ 92.8-93.3 billion, while the previous forecast assumed an increase to $ 92.5-93.3 billion. J&J predicts COVID-19 vaccine sales in 2021 will be approximately $ 2.5 billion, and approval of a booster dose could lead to higher vaccine revenues in 2022. From mid-August to mid-October, the company's shares were in a downward local trend. We believe that the market may turn its attention to the improvement of the annual forecast, as the paper has significantly dropped in price and looks attractive at current levels.

Last quarter, J&J increased its quarterly dividend by 5% to $ 1.01 per share. The indicative annual dividend yield is 2.6%. Successful drug testing can be distinguished from the main growth drivers for J&J shares: firstly, it justifies investment in research, and secondly, it helps to increase sales and business expansion. J&J's sales are expected to grow $ 10.8 billion to $ 102 billion by 2023, driven by stronger sales of nine drugs alone, including Darzalex, Imbruvica, Erleada and Tremfya. We like J&J's business profile as well as the current macro environment, which is having a positive impact on the company's operations. We also like the issuer's stable dividend profile. We maintain a fair value estimate for the company's shares at $ 195.

Johnson & Johnson is one of the world's largest and most diversified health care companies that offers products worldwide from its three major businesses divisions: Pharma, Medical Devices and Diagnostics, and Consumer products. JNJ is one of only four companies with a AAA credit rating, which gives it a tremendous amount of flexibility on its debt instruments and provides the company with unparalleled buying and selling opportunities in all market environments. JNJ consists of over 275 operating companies located in 60 countries. JNJ's top three priorities to shareholders are: (1) its dividend; (2) judicious M&A/L&A across the three divisions; and (3) share repurchases that eliminate dilution. The company intends to maintain its industry-leading dividend payout ratio at the 47% level or higher.

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