J&J falls despite a beat-and-raise quarter. Why we’re raising our price target anyways
Johnson & Johnson shares fell Tuesday despite a mostly strong second-quarter earnings report and an increase to its full-year guidance. We’re not rattled by the market reaction and believe the reasons to like J & J remain intact. Revenue in the second quarter rose 6.6% year over year to $25.31 billion, beating the LSEG consensus of $25.05 billion. Adjusted earnings per share (EPS) in the quarter totaled $2.90, ahead of the $2.85 estimate, LSEG data showed. Shares of J & J are off over 2% in afternoon trading. But keep in mind: Going back to the third quarter of 2021, J & J shares have reacted to earnings with a less than 1% move on average. Put another way, this is not a stock that makes its move on the back of earnings announcements. It’s a stock that gains on consistent execution over time. What we saw in the results and heard on Wednesday’s call gives us increased confidence that the consistent execution we’ve come to expect from this management team will continue. Throughout the spring, healthcare stocks like J & J fell out of favor as the market was dominated by the AI trade. Then, as that trade wobbled during June, we saw a rotation into left-behind defensive stocks, which included J & J (and fellow Club name Cardinal Health , for that matter). Those rotation winners lost a bit of steam in recent days. It remains to be seen what kind of market we will have in the coming months into year-end. But in a diversified equity portfolio, we believe J & J is a stock worth owning. Why we own it Johnson & Johnson has a robust pipeline and a strong line-up of drugs on the market. That includes Icotyde, an oral IL-23 inhibitor for the treatment of moderate-to-severe plaque psoriasis. Approved in March, Icotyde has the potential to be a major growth driver in the coming years. Most recent buy: June 1, 2026 Initiation date: April 8, 2026 Competitors: AbbVie, Merck, Bristol Myers, Medtronic (among others) JNJ YTD mountain Johnson & Johnson’s year-to-date stock performance. Bottom line Johnson & Johnson delivered a solid — though not sterling — quarter. In addition to strong top-line performance both at home and abroad, which resulted in better-than-expected earnings, management raised its outlook for the full year. What’s especially notable is that the magnitude of the full-year earnings raise is greater than the size of the second-quarter beat. That indicates the strength is not a one-quarter phenomenon, and that management expects the momentum to continue in future quarters. One of the biggest blemishes in the report is in the medical-device business, known as MedTech. In particular, there was weakness in the cardiovascular unit, where sales of Abiomed’s heart pumps slumped. As we highlighted in our earnings preview , MedTech was going to be closely scrutinized after HCA Healthcare’s warning on Tuesday about a decline in surgical procedure volume. Plus, within MedTech, cardio is one of the more closely watched units as it tends to be faster growing and will be increasingly impactful on the segment’s growth once its orthopedics business is separated. So, the miss is notable, with cardio sales of $2.4 billion versus $2.55 billion expected. However, it’s important to keep it in context. The overall MedTech unit still grew year over year and the miss was partially offset by better-than-expected performance in the rest of the MedTech portfolio. For the quarter, MedTech reported worldwide sales growth of 3.6% on an operational basis, which includes foreign-exchange benefits, and 4.5% on a reported basis. Moreover, while a roughly $150 million miss for cardio is certainly not nothing, we have to be mindful that the company did just report over $25 billion in total sales for the quarter. It also remains on track to deliver over $100 billion in sales for the first time in its 140-year history this year. Furthermore, we value a management team that doesn’t hide from the issue, and CFO Joe Wolk addressed the miss head on, giving us confidence that the team is not happy with the results and won’t allow the poor performance to go unaddressed. In an interview on CNBC this morning, Wolk said, “Within our cardiovascular unit, we didn’t meet our standards there. So, there was a piece of a piece of a business in that cardiovascular unit that was a little bit slower. [MedTech chair] Tim Schmid and the team are focused on remedying that going out of this year, into next year. So, we think this is more of an acute issue, and overall I think that really speaks to the breadth of Johnson & Johnson. It doesn’t have to be a perfect print in order for us to exceed Street expectations and take up guidance.” J & J’s pharmaceutical business — officially dubbed the Innovative Medicine segment — grew worldwide sales 6.8% on an operational basis and 7.8% on a reported basis. But if you exclude immunology drug Stelara, which lost patent protection and is facing cheaper biosimilar competition, the pharma business grew over 14%. That’s important because one of the key bull cases for J & J is an improving growth rate, particularly in the latter part of the decade. Growth in J & J’s cancer portfolio came in at 17.3%, powered by nearly 50% growth in Carvykti, 19% growth in Darzalex, and nearly 57% growth in Tecvayli. The trio are all therapies for multiple myeloma, a complex type of blood cancer where patients may need a variety of treatments to help fight the disease. Darzalex, considered a backbone therapy, is J & J’s biggest single drug by sales. While its quarterly revenue came up a bit short versus Wall Street expectations, sales were still more than $4 billion. Meanwhile, lung cancer drug Rybrevant also saw growth north of 61% — plus, CEO Joaquin Duato noted that during Q2, J & J asked the FDA to expand its license to include head and neck tumors. J & J’s neuroscience drugs grew a combined 13.9%, with 71% growth in sales of antipsychotic Caplyta and greater than 41% growth in Spravato, an anti-depressive nasal spray. On the earnings call, Duato said Caplyta new patient starts increased 122% versus the year-ago period, with continued momentum after the FDA in April approved the drug for the prevention of relapse in schizophrenia. As Jim noted on Wednesday’s Morning Meeting, we expect growth to continue as new indications are achieved, including potentially for bipolar mania. J & J picked up Caplyta in its $14.6 billion acquisition of Intra-Cellular Therapies, which closed in April 2025 . The drag from Stelara is apparent within J & J’s immunology portfolio, where sales dropped just under 4% year over year. Again, though, investors know about the Stelara declines. The biggest growth driver right now is Tremfya, with sales up more than 72% from a year ago. While approved to treat inflammation-related conditions like plaque psoriasis and psoriatic arthritis, an expanded label to address Crohn’s disease and ulcerative colitis is driving momentum for the drug. Management also said it was gaining share across all indications, an encouraging sign. Also notable was the commentary on Icotyde, a once-daily pill for the treatment of moderate-to-severe plaque psoriasis approved by the FDA in March. Between Icotyde and Tremfya, J & J has one of the deepest, most differentiated offerings in immunology. On the call, Duato called out “significant early launch momentum” for Icotyde, “with uptake accelerating and performance outpacing competitors at comparable points in their launches.” He said more than 10,000 patients have started treatment with the drug since its launch. Icotyde is core to our investment thesis as patients look to trade in needles for pills. We think it has major potential given its superior results and potential for new indications (similar to how Tremfya’s label grew over time). J & J also believes that it could become one of its largest products ever . Consider that the best-selling drug of all time is AbbVie’s Humira. However, with the loss of exclusivity, AbbVie needed a new formulation. It found its answers in Skyrizi, which like Icotyde is an IL-23 inhibitor, and Rinvoq, which is a JAK inhibitor taken orally. While their targeted diseases tend to overlap, IL-23 inhibitors generally have a better safety profile due to their more targeted method of treatment. JAK inhibitors, on the other hand, attack a wider range of inflammatory pathways and, as a result, come with an increased risk profile. Skyrizi, however, is injection only. Same goes for J & J’s own Tremfya. Icotyde represents the only oral IL-23 medication on the market, making it uniquely positioned to take share from AbbVie in the market for the treatment of plaque psoriasis and other conditions down the road. Crohn’s disease and ulcerative colitis are two indications the team is looking into, which, if achieved, would put the drug in even more direct competition with Skyrizi and Rinvoq. Of course, it also could spark concerns about cannibalizing Tremfya. Jennifer Taubert, the head of Innovative Medicine, had this to say on Wednesday’s call: “We’ve got this great uptick in Icotyde. This has not slowed down Tremfya in psoriatic disease at all.” Given the strong results and the fact that the midpoint of guidance was raised by more than the magnitude of Wednesday’s earnings beat, we think there is more room to run. We therefore reiterate our buy-equivalent 1 rating and are increasing our price target to $275 from $265. Guidance J & J raised its full-year guidance across several metrics. Here’s where it stands now versus its April 2026 outlook: Operational sales growth in the range of 6.5% to 7.1%, up from 5.9% to 6.9%. Reported sales between $100.8 billion and $101.4 billion, up from $100.3 billion to $101.3 billion. The new midpoint implies 7.3% year-over-year growth, up from 7% previously. Adjusted EPS in the range of $11.60 to $11.75, up from $11.45 to $11.65. At the midpoint, that implies 8.2% growth, up from 7.1% previously. J & J now expects adjusted pre-tax operating margin expansion of about 75 basis points, up from the prior forecast for at least 50 basis points from the prior year. Net interest expense guidance moved a bit lower, with the team now expecting it to fall in a range $250 to $300 million, down from the $300 million to $400 million range previously provided. The effective tax rate is now expected to be between 17% and 18%, down from the prior 17.5% to 18.5% range. (Jim Cramer’s Charitable Trust is long JNJ and CAH. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
More stories
