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In a Mixed Quarter, Johnson & Johnson Shows Off Its Greatest Strength

By Prosper Junior Bakiny - Jan 31, 2020 at 9:27AM

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Despite slow revenue growth, the healthcare company has much to offer investors.

Johnson & Johnson (JNJ 0.91%) is the largest healthcare company in the world, but that hasn't stopped the pharma giant from encountering headwinds. It is currently involved in a slew of legal challenges, including lawsuits by consumers claiming that the company's talcum powder (which allegedly contained asbestos) caused their cancer. In October 2019, Johnson & Johnson lost a lawsuit and was ordered to pay $37.2 million in punitive damages to four plaintiffs. 

Given its recent troubles, the company had a chance to ease investors' fears when it released its earnings report on Jan. 22. And although Johnson & Johnson failed to knock it out of the park, the company performed well enough to prevent a sell-off. In particular, it showed off its greatest strength: diversification. 

Doctor standing inside a pharmacy

Image source: Getty Images.

Johnson & Johnson's fourth-quarter results

During the fourth quarter, net sales were $20.8 billion, an unimpressive 1.7% increase year over year and below the consensus analyst estimate. But the company's $4 billion net earnings grew by 31.8% versus the year-ago period, and its $1.88 adjusted earnings per share came in slightly ahead of the consensus analyst estimates.

Johnson & Johnson's medical devices segment posted revenue of $6.63 billion, a 0.5% year-over-year decrease. Meanwhile, the company's consumer segment, which sells over-the-counter medical products, posted revenue of $3.57 billion, 0.9% higher than the prior-year quarter. 

The pharmaceuticals segment generated $10.5 billion in sales, 3.5% higher than the year-ago period. Johnson & Johnson has been dealing with declining sales of several of its key pharmaceutical products. The rheumatoid arthritis drug Remicade reported $1 billion in sales, down from $1.2 billion in the prior-year quarter. Also, the prostate cancer medicine Zytiga, which has been facing competition from biosimilars, generated $677 million in sales, a 13.8% year-over-year decline. 

Fortunately, Johnson & Johnson's portfolio of pharmaceutical drugs is rich and diverse, and other products performed well enough to offset the declining sales of some of its top products. Sales of the cancer drug Imbruvica increased by 24.5% to $875 million, and revenue from Darzalex (for blood cancer multiple myeloma) increased by 42.1% to $830 million. Sales of immunology drugs Stelara and Tremfya grew by 17.7% and 53.9%, respectively. 

There was more good news for some of Johnson & Johnson's top pharmaceutical products. During the fourth quarter, Darzalex was approved in Europe for the treatment of multiple myeloma for certain patients. And the Food and Drug Administration recently approved Stelara for the treatment of moderately to severely active ulcerative colitis, a chronic inflammatory disease that affects about 910,000 patients in the U.S. With these two approvals, sales of Darzalex and Stelara will likely keep growing. 

More approvals on the way 

In addition to its rich portfolio of products, Johnson & Johnson boasts a rich pipeline, and the company likely has more approvals on the way. During the fourth quarter, it submitted a marketing authorization application to the European Medicines Agency (EMA) for a vaccine regimen for the prevention of ebola virus disease. The company also submitted an application to the EMA for Tremfya as a treatment for active psoriatic arthritis. 

Johnson & Johnson's other regulatory submissions during the fourth quarter included Spravato as a treatment for major depressive disorder in Europe, and Imbruvica as a treatment for active chronic lymphocytic leukemia (in combination with another drug called rituximab that treats certain cancers).

The company's late-stage pipeline also includes more than a dozen new products, or existing products seeking new indications. 

Should you buy? 

Johnson & Johnson is an excellent option for investors looking for companies with the versatility to handle a market downturn. It has a hand in three different segments within the healthcare industry, and the pharmaceutical segment is diversified as well. On the other hand, Johnson & Johnson probably won't outperform the market. 

Over the past five years, the company's shares climbed by 46.15%, whereas the S&P 500 is up by 61.43% over the same period. In other words, whether you should buy shares of Johnson & Johnson depends on your priorities and investing style. Conservative investors will likely love it, whereas growth-oriented investors might have to look elsewhere. 

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