Johnson & Johnson (JNJ 0.67%) had a strong 2017, with its stock posting a nearly 25% total return. Key moves like the acquisitions of Actelion and Abbott Medical Optics helped to goose growth rates higher, and some big drugs from J&J's pharmaceutical portfolio helped offset losses in sales on some older blockbusters that have hit their peaks.
Many investors have extremely high expectations for Johnson & Johnson this year, but it could be difficult for the healthcare conglomerate to live up to the hype and still produce the outstanding growth necessary to justify further share-price gains. Let's take a closer look at what Johnson & Johnson is likely to tell investors and what you should watch out for in its fourth-quarter report, due out on Tuesday, Jan. 23.
Stats on Johnson & Johnson
|
Expected Quarterly EPS Growth |
8.9% |
|
Expected Quarterly Revenue Growth |
10.9% |
|
Forward Earnings Multiple |
18.8 |
|
Expected 5-Year Annualized Growth Rate |
7% |
Data source: Yahoo! Finance.
What's ahead for Johnson & Johnson?
Analysts have gotten increasingly optimistic about Johnson & Johnson earnings. They've generally kept their short-term projections unchanged, but 1% boosts to both full-year 2017 and 2018 predictions reflect the bullishness that many shareholders feel about the healthcare giant. The share price has vaulted to new highs, climbing 9% since mid-October.
Its most recent earnings report reveals Johnson & Johnson has worked hard to get its key pharmaceutical business to contribute the most it can to overall results. That strategy paid off in the third quarter, with double-digit-percentage revenue gains that helped adjusted net income rise by 11% from year-earlier levels. The Actelion acquisition drove much of the rise in the pharmaceutical segment, but organic growth rates independent of M&A activity were quite strong as well. Even the often-sluggish consumer products segment managed to post decent sales gains, and the Abbott Medical Optics acquisition supplemented organic growth in medical devices to produce segment top-line increases as well.
Successes in the past several months should keep paying off for Johnson & Johnson. The company has not only produced new drugs but also added further indications for already-proven drugs in its stable of successful products, including cancer treatment Imbruvica and autoimmune-disease fighters Stelara and Simponi.
CEO Alex Gorsky. Image source: Johnson & Johnson.
Yet the most encouraging sign of long-term potential for Johnson & Johnson is its recognition that it can't afford to coast on its past performance. At a recent healthcare conference, J&J CEO Alex Gorsky noted that he wants the company to have a newfound sense of urgency, aiming to keep capitalizing on innovations that could carry the healthcare industry forward. Already, collaborations in areas like robotic surgery promise to add a contender to a rapidly growing market. Johnson & Johnson also can't afford to forget about optimizing its internal operational performance, but an openness to changing paradigms surrounding the way of doing business could help the company capture opportunities that other big healthcare players might pass up.
Finally, shareholders want to know how much J&J will benefit from the recent tax reform efforts. Lower corporate rates will undoubtedly be helpful, but the return in 2018 of the medical device tax (introduced in the Affordable Care Act and later suspended) could offset some of those benefits unless lawmakers take further action to repeal the tax provision, which is widely disliked in the industry.
When Johnson & Johnson releases its earnings report for the final quarter of 2017, you'll want to look hard at the key pharmaceutical segment while also paying attention to the tax savings the company could realize in 2018 and beyond. With freed-up capital for reinvestment wherever it wants, Johnson & Johnson could see a new wave of activity to start out the year.
