Solid sales growth and acquisitions make this healthcare play

Johnson & Johnson (JNJ) reported second-quarter sales rose 4.3% to $22.4 billion, with net income down 12.8% to $4.69 billion and earnings per share down 5.9% to $1.93. Excluding special items, adjusted earnings per share rose 10.2% to $2.82, it noted. Ingrid Hendershoteditor Hendershot Investments.

During the quarter, Johnson & Johnson generated approximately $7.5 billion in free cash flow and returned $3 billion in dividend payments to shareholders. Johnson & Johnson invested $17 billion in strategic inorganic growth opportunities during the quarter. The company ended the quarter with approximately $25 billion in cash and investments and $41 billion of debt on its AAA-rated balance sheet.

In a conference call, executives provided an update on the talc litigation. Working with plaintiffs’ lawyers, Johnson & Johnson has committed to spending $8 billion over 25 years to resolve 99.5% of lawsuits.

Johnson & Johnson

Plaintiffs have until July 26 to vote on the proposed settlement. If 75% of plaintiffs approve the settlement, Johnson & Johnson will proceed with plans to split into two entities, and the talc entity will file for bankruptcy.

Johnson & Johnson updated its 2024 guidance to reflect improved results and the impact of the recent acquisitions of Shockwave Medical, Proteologix and NM26 Bispecific Antibody. Reported sales for 2024 are expected to increase 4.7% to 5.2% to $88.4 billion. Operating margins are expected to decline 120 basis points due to the recent acquisitions, and adjusted earnings per share are expected to increase modestly 0.5% to 1.5% to $9.97 to $10.07.

Management expects Innovative Medicine sales growth to slow in the second half of the year due to the anticipated launch of STELARA biosimilars and continued adoption of recently launched products. MedTech sales growth is expected to accelerate in the second half of the year due to a recovery in contact lenses, continued expansion in high-growth segments, including the integration of the Shockwave acquisition, and continued new product growth.

Recommended action: Buy JNJ.