Yet investors who held the stock even as it fell to below $125 in January were rewarded for their tolerance. J&J stock closed on Friday at $139.05 and is just about 6.8% below its 52-week high. Despite sales falling 7.4% globally in the first quarter, the company has many more product lines to rely on. What are the diversified products that Johnson and Johnson has to grow earnings in 2019?
Growth in Robotics
J&J completed its acquisition of Auris Health on April 1 for around $3.4 billion in cash. The robotic technology is currently used for diagnostic and therapeutic procedures in the lung. J&J wants to take the technology further by advancing its role in fighting lung cancer. It also wants to develop its role in digital surgery. If Intuitive Surgical, Inc. (ISRG - Get Report) is proof that the medical robotics segment is growing, J&J will surely grow the Auris unit with success.
Auris will be highly complementary to J&J's Verb program. Already, the team has completed all preclinical procedural developments and has engaged with hundreds of surgeons.
Strong Revenue Momentum
Besides acquisitions bolstering growth, J&J's core businesses remain strong. Its worldwide consumer segment grew 2.2% to $3.3 billion. Well-known brands, especially Tylenol and Neutrogena, led the company's market share growth. Sales through e-commerce channels helped the company continue this positive momentum.
The consumer unit honed in on facial cleansers and moisturizing treatment in the first quarter. With OGX and Maui Moisture growing in the period, expect its introduction in new markets lifting overall sales in the consumer segment for the rest of the year.
Strong Pharmaceutical Sales
J&J's Pharmaceutical unit reported revenue growing a solid 7.9% year-on-year to $10.2 billion, with nine of its key products growing in the double digit percentages. Weaker pricing power hurt U.S. sales growth, which lagged to 4.3%, compared to the 12.2% growth outside of the U.S. Generic competition for Zytiga is the primary reason for the slower U.S. growth.
The Oncology unit reported global growth of 14.5%, led by the 51% sales increase for Darzalex. This drug is a monoclonal antibody (mAb) that treats multiple myeloma. Sales of Darzalex grew 18% in markets outside the U.S. And the drug gained market share in Asia-Pacific, Latin America, and 40 EMEA countries. With such positive momentum, J&J will benefit as the drug was made available in nine new markets in the quarter.
Sales of Imbruvica, which treats certain cancers, grew 40% globally in the first quarter. Strong uptake of the drug led to market share gains and strong market growth.
In the Immunology space, global sales grew by close to 10%, led by strong demand for Stelara. And in the neuroscience space, sales grew 17%. The FDA approval of Spravato in March should give the unit a positive lift this year. Spravato is used on patients with treatment-resistant depression.
Outlook Outweighs Headwinds
The 7.4% global decline in the Babycare unit will worry some investors, and the 9.5% drop in cardiovascular and metabolism portfolio is also a disappointment. Despite these declines, J&J raised its January guidance when it reported first-quarter results, increasing its EPS guidance by 50 basis points. It expects that sales will grow 2.5% to 3.5% while EPS will come in at $8.78 a share. At a recent stock price of about $139, JNJ stock trades at a forward P/E of about 16 times.
Ten analysts covering JNJ stock have an average price target of $147.30, according to Tipranks. Since the implied upside on the stock is just about 6%, investors may want to wait for the stock to pull back before starting a position. Similarly, if investors value the company based on future cash flow, the fair value is only about 9% above the current stock price (per finbox.io).
Although unlikely, the press could resume negative coverage on the cancer risks of J&J's baby powder at any time, hurting the stock price. Yet any drop in shares will create a buying opportunity because the company is well diversified and trades at reasonable multiples.