3 Things About Johnson & Johnson Every Smart Investor Knows

Johnson & Johnson (JNJ -0.46%) is a value investor's dream stock. The company has been around for 137 years and has a well-deserved reputation for thriving even during economic downturns. 

The stock is down around 2% so far this year, but considering the healthcare giant's long-term stability, that serves as a good price point to buy its shares.

The company is popular in part because of its reliable quarterly dividend, which it has raised for 61 consecutive years, including a 5.3% bump this year to $1.19 a share, leaving a yield of around 2.78%. Here are three things every smart investor knows about Johnson & Johnson stock.

1. The company's undergoing a big change

The healthcare company is still in the process of splitting off its consumer healthcare division into a new company, Kenvue. Kenvue has been trading as a separate company, though still a company under Johnson & Johnson's umbrella. Kenvue had its initial public offering in May, but Johnson & Johnson still owns the majority of its stock.

On July 24, Johnson & Johnson said it planned to sell off at least 80% of its Kenvue shares through an exchange offer where Johnson & Johnson shareholders could trade none, some, or all of their J&J stock for Kenvue stock. The company said it expects shareholders to receive approximately $107.53 of Kenvue stock for every $100 of J&J stock.

The move away from consumer healthcare -- which includes some of the company's iconic brands, such as Tylenol, Listerine, and Benadryl -- is meant to allow it to focus more on its Pharmaceutical and MedTech segments, which are seen as having more growth potential. 

However, if you look back 10 years, the only segment of the three that really grew was Pharmaceuticals. It went from $25.4 billion in sales in 2012 to $52.6 billion in sales last year, up 107% over that period. MedTech, known in 2012 as Medical Devices and Diagnostics, didn't move at all, with $27.4 billion in sales in 2012 and 2022. Consumer Healthcare was up only slightly, though, with $14.4 billion in 2012 sales and $14.9 billion in sales this past year.

A greater focus on the Pharmaceutical and MedTech segments may already be paying off, however. In the second quarter, the company reported that MedTech sales jumped 12.9% year over year to $7.8 billion. Pharmaceutical revenue grew by 3.1% over the same period last year, with $13.7 billion in sales, led by gains by multiple myeloma therapies Darzalex and Carvykti. Consumer Healthcare also grew to $4 billion in sales, up 5.4% year over year.

2. Talc lawsuits will likely weigh on the stock's price for a while

Johnson & Johnson has been dealing with lawsuits regarding the use of talc in some of its products since it lost three talc lawsuits in Missouri in 2016 for over $100 million in damages. The company pulled all its talc products off the shelves in 2020, citing poor sales. 

Earlier this month, it lost a civil trial in California, where a jury awarded $18.8 million to a man who said he'd developed a rare form of mesothelioma cancer from prolonged use of Johnson & Johnson's baby powder as a child. Johnson & Johnson plans to appeal the verdict.

The case was allowed to appeal despite a nationwide freeze on Johnson & Johnson's talc litigation. The freeze is in place until a hearing's held over the company's plan to divert the talc claims to a subsidiary, LTL Management, that's undergoing Chapter 11 bankruptcy proceedings. Of 42 talc lawsuits that have gone to trial, Johnson & Johnson has lost 10, with the remaining 32 suits ending in wins for the company, mistrials, or wins after an appeal.

LTL Management filed for bankruptcy in April while proposing to pay $8.9 billion to settle more than 38,000 lawsuits and halt new ones. 

The biggest problem with all the lawsuits isn't the cost of the litigation to the company, though it said the tab is now $4.5 billion. It's that the long-running saga continues to hang over the company's reputation.

3. Its revenue should keep climbing

Johnson & Johnson has seen yearly revenue rise for seven consecutive years. This year, it's forecasted that it will have revenue between $98.8 billion and $99.8 billion, up 7% over 2022, at the midpoint. One big reason for that expected climb is that the company has two drugs that are on track to earn around $10 billion this year in sales.

Darzalex brought in $2.4 billion in second-quarter sales, up 22.4% year over year. In six months, the drug generated $4.7 billion in sales, up 22.2% over the same period last year. The company shares Darzalex sales with collaborator Genmab. 

The drug was approved in 2015. Since a subcutaneous version called Darzalex Faspro, done in minutes, was developed in 2020, its sales have jumped. That's because the previous treatment was an intravenous solution, which took hours.

The other likely $10 billion therapy is autoimmune drug Stelara, which brought in $2.8 billion in revenue in Q2, up 7.6% year over year. Through six months, it's delivered $5.2 billion in revenue, up 7.2%. Stelara is approved to treat plaque psoriasis, psoriatic arthritis, Crohn's disease, and ulcerative colitis. Initially approved in 2009, J&J's top seller might get two more years of elite sales after the company reached an agreement with Amgen to delay its Stelara biosimilar until January 2025.

On top of that, the company's huge spending on research and development is expected to continue paying off. It spent $15 billion on R&D last year. It has already seen a quick uptake from the launch of Carvykti in 2022, and this year, it's gotten approvals in Europe for Talvey to treat relapsed and refractory multiple myeloma and Akeega to treat metastatic castration-resistant prostate cancer.