JNJ Financial Analysis

Analysis Date: 1/24/2025

Business Model

Johnson & Johnson operates through two segments: Innovative Medicine and MedTech.

Revenue Sources

• Innovative Medicine: Focuses on pharmaceuticals for various therapeutic areas including Oncology, Immunology, Neuroscience, Cardiovascular, Metabolism, and Infectious Diseases.
• MedTech: Offers a broad range of medical devices, including Orthopaedics, Surgery, Vision, and Cardiovascular (previously Interventional Solutions) products.

Income Statement Analysis

• Revenue increased by 5.3% compared to Q4 2023, driven by operational growth of 6.7%, but offset by currency impact.
• Gross Profit increased by 5.4%, in line with revenue growth, indicating stable gross margins.
• Operating expenses, particularly SM&A and R&D, increased significantly by 11.1% and 18.3% respectively, impacting profitability.
• Earnings before provision for taxes on income decreased by 19.5%, and Net Earnings from Continuing Operations decreased by 17.0%, reflecting higher operating expenses.

Capital Allocation

Johnson & Johnson's capital allocation strategy prioritizes organic growth, competitive dividends, share repurchases, and strategic M&A. In Q4 2024, they had $25 billion in cash and marketable securities and net debt of approximately $12 billion. Full year 2024 saw ~$20 billion in free cash flow, $17.2 billion invested in R&D, and $11.8 billion paid in dividends. Approximately $32 billion was deployed, announced, or committed in strategic, inorganic growth opportunities, including the planned acquisition of Intra-Cellular Therapies Inc.

Management Commentary

2024 was a transformative year for Johnson & Johnson, marked by strong growth, an accelerating pipeline and industry-leading investments in innovation.

Positioned for 5-7% growth through 2030 and beyond.

Company issues guidance for 2025 with operational sales growth of 2.5% - 3.5% and adjusted operational EPS of $10.75 - $10.95, reflecting strong growth of 8.7% at the mid-point.

Q4 Earnings per share (EPS) of $1.41 and Adjusted EPS of $2.04, both include $(0.22) due to acquired IPR&D charges related to V-Wave acquisition.

Overall Sentiment: Positive. Management expresses confidence in future growth, driven by innovation and strategic investments. While Q4 earnings were impacted by increased expenses and IPR&D charges, the overall tone is optimistic about long-term prospects.

Recommendation

Rating: Hold

Reason for Rating: Based on Q4 2024 results, a Hold recommendation is appropriate. Revenue growth is positive, but earnings are down due to increased operating expenses and one-time charges. The company is investing heavily in R&D and acquisitions, which could drive future growth, but near-term profitability is under pressure. 2025 guidance is positive, but the impact of acquisitions and biosimilar competition needs to be monitored.

Disclaimer: This analysis is based on company filings and public information. It is for informational purposes only and not financial advice. Past performance does not guarantee future results. Investing in securities involves risks, including potential loss of principal. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 1/24/2025, 4:19:48 AM