The news hasn't been great lately for healthcare giant Johnson & Johnson (JNJ -1.15%). On Jan. 24, the company reported fourth-quarter revenue of $23.7 billion, down 4.4% year over year, and earnings per share (EPS) of $1.33, down 24.9% over the previous year's quarter. While full-year revenue was up 1.3% to $94.9 billion, 2022 EPS was reported as $6.73, down 3.6% compared to 2021.
Then, on Jan. 30, the Third Circuit Court of Appeals rejected the company's use of Chapter 11 bankruptcy in a shell company known as LTL Management, to avoid lawsuits over whether its talc products caused cancer. The reason cited was that LTL Management was not a debtor in financial distress because it had the backing of Johnson & Johnson. The move revives roughly 40,000 talc lawsuits that could be brought against Johnson & Johnson. One analyst told The Wall Street Journal that the court's decision could mean an additional $10 billion in talc settlement costs for Johnson & Johnson.
The back-to-back bad news contributed heavily to the company's share prices falling more than 7% so far this year. Is this an opportunity to buy J&J share low, or is it a reason to bolt?
A closer look at J&J's numbers, including forecasts
Between the lowered earnings and the lawsuits, the latter is more likely to drag the company's stock down for a while. Right now, this blue-chip stock is trading at less than 25 times earnings. Though J&J stock bounced back a little on Jan. 30, it wouldn't be surprising to see sluggishness in its shares for the next few weeks as investors digest the bad news.
Just as the company was able to absorb losses due to opioid lawsuits and keep going, it will likely manage the talc lawsuits as well. It's worth noting that Johnson & Johnson, despite pulling its talc products in 2020, has won its share of the lawsuits -- including a 2021 decision that rejected a $50 million claim in Illinois.
The company's guidance for 2023 predicts yearly revenue of $96.9 billion to $97.9 billion, up 4.5% to 5.5% over 2022. Yearly adjusted EPS in 2023 was forecast to be between $10.45 and $10.65, up 3% to 5% over 2022.
Hidden in all the other news is that this year, the company expects to spin off its consumer health segment into a new publicly traded company called Kenvue. Over the past few years, the segment has been consistently less profitable, with lower margins than J&J's medtech and pharmaceutical segments. In 2022, consumer health had $14.9 billion in revenue, up 0.5% over 2021, while pharmaceutical was up 6.7% over 2021 to $52.6 billion and medtech had $27.4 billion, up 6.2% compared to 2021.
The medtech segment will be given a boost by the company's acquisition of heart pump maker Abiomed, which was completed in December. The purchase should be accretive to J&J by 2024, said CEO Joaquin Duato on the company's fourth-quarter earnings call.
Duato also said he sees pharmaceutical bringing in $60 billion a year in revenue by 2025. Several of the company's therapies saw double-digit growth over 2021, including oncology drugs Darzalex ($7.9 billion in 2023 revenue, up 32.4%) and Erleada ($1.9 billion in 2023, up 45.7%), and immunology drug Tremfya ($2.6 billion in 2023 revenue, up 25.4%). The company also launched two multiple myeloma therapies with strong potential: Tecvayli and Carvykti.
Counting on consistent returns
Johnson & Johnson has long been seen as a safe-harbor stock. With many predicting a recession this year, the company's stability will continue to attract those looking for consistent returns in difficult times. The stock outperformed the S&P 500 by nearly 22 percentage points last year, by 28 percentage points during the 2008 Great Recession, and by 25 percentage points during the 2001 downturn.
Over the past 10 years, Johnson & Johnson's total return is more than 190%. That's not spectacular, but the company doesn't go into huge tailspins. One reason for that is its dividend, which rewards long-term investors. In 2022 the company raised its dividend by 6.6% to $1.13 per share, for a current yield of 2.8%, well over the S&P 500 average yield of 1.7%. J&J has raised its dividend for 60 consecutive years, and though its cash dividend payout ratio is close to 65%, it's safe to assume it will boost its dividend again this year.
Definitely worth waiting for another dip
As previously mentioned, I wouldn't be surprised to see the talc lawsuits keep the company's shares down for a bit. Investors should look for another dip to take advantage of one of the more dependable stocks. I don't think the company's spinoff of its consumer health division has been factored into many investors' calculations on J&J's worth, and it makes sense to get in now before it begins showing greater profitability.
