Although broader equities performed well in 2025, volatility was significant, especially at the start of the year, partly due to the Trump administration's trade policies. The president imposed steep tariffs across the board, which many feared would harm corporations' financial results. The tariff situation is still evolving, and many companies are looking to find ways to overcome this potential threat. That brings us to Johnson & Johnson (JNJ 0.39%), a pharmaceutical leader that recently made headlines along those lines. Let's look into what these recent developments mean for Johnson & Johnson and whether the stock is worth investing in.
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Getting around the threat of tariffs
On Jan. 8, Johnson & Johnson announced that it had reached a deal with the Trump administration to sell drugs at reduced prices in the country. In exchange, the healthcare giant will be exempt from tariffs. True, it's not ideal that Johnson & Johnson has to cut the prices of some of its medicines, but this could lead to increased sales volume that will somewhat offset the reduced price.
Further, an exemption from tariffs could help the company avoid higher costs from high import duties. As of the end of the fiscal year 2024, Johnson & Johnson had 64 manufacturing facilities, 41 of which were outside the U.S. So, tariffs could have a meaningful impact on its financial results. Early last year, the company estimated $400 million in tariff-related costs for fiscal year 2025, though that was before significant movement and uncertainty.
That may not seem like much for a company that generates over $14 billion in net income (as of 2024), but the impact of tariffs would compound over several years and, eventually, meaningfully decrease its profits and margins. So, selling medicines at a lower cost in exchange for a tariff exemption is well worth it for the drugmaker. Johnson & Johnson is also investing in strengthening its U.S. manufacturing capacity.
It's worth pointing out that Johnson & Johnson isn't the first pharmaceutical leader to strike a similar deal with the Trump administration. Others, namely Pfizer and AstraZeneca, have made similar moves.
NYSE: JNJ
Key Data Points
Is the stock a buy?
Johnson & Johnson performed well last year despite the tariff situation and the loss of U.S. patent exclusivity for one of its growth drivers, Stelara, an immunosuppressant. In the third quarter, the company's revenue increased by a solid 6.8% year over year to $24 billion. Johnson & Johnson's adjusted earnings per share came in at $2.8, up 15.7% compared to the year-ago period. One reason for Johnson & Johnson's strong performance is its large, diversified product portfolio.
Stelara was a growth driver, but others have since picked up the slack. The company can still count on medicines such as cancer drugs Darzalex and Erleada, and immunosuppressant Tremfya, among others. What's more, Johnson & Johnson is even more diversified thanks to its medtech segment. Now, some will point to risks the company faces, including Medicare drug price negotiations that will affect sales for some of its products.
However, Johnson & Johnson's innovative capabilities, which enable it to overcome patent cliffs, can help mitigate this risk as well. The company has a vast product pipeline with dozens of candidates and routinely earns new approvals and label expansions. Some of the company's new approvals include Imaavy, a medicine for generalized myasthenia gravis (an autoimmune disease that causes muscle weakness); and Akeega for prostate cancer.
Johnson & Johnson should be fine despite the Medicare drug price negotiation. There are also the many lawsuits the company faces, but that too shouldn't be too much of a problem given its rock-solid balance sheet, as evidenced by its AAA credit rating. Johnson & Johnson has important long-term tailwinds, too. The world's aging population is one of them. Seniors need more medical care, including pharmaceutical drugs. Within its medtech division, Johnson & Johnson is developing the Ottava system, which will enable it to enter the underpenetrated robotic surgery market.
Lastly, Johnson & Johnson is an exceptional income stock. The company is a Dividend King, or a corporation with at least 50 consecutive years of payout increases under its belt. For all those reasons, Johnson & Johnson is a strong buy-and-hold option, especially for dividend seekers.
