J&J falls despite a beat-and-raise quarter. Why we’re raising our price target anyways
Johnson & Johnson shares fell on Tuesday despite a mostly strong second-quarter earnings report and a boost to full-year expectations. We are unshaken by the market reaction and believe the reasons to love J&J remain solid. In the second quarter, revenue rose 6.6% year over year to $25.31 billion, beating LSEG’s forecast of $25.05 billion. Adjusted earnings per share (EPS) for the quarter came in at $2.90, above estimates of $2.85, according to LSEG data. J&J shares were down more than 2% in afternoon trading. But keep in mind: Going back to the third quarter of 2021, J&J shares responded to earnings with an average move of less than 1%. In other words, this isn’t a stock that moves after earnings announcements. It is a stock that produces returns when exercised consistently over time. What we saw in the results and what we heard on Wednesday’s call gives us increasing confidence that the consistent execution we expect from this management team will continue. Throughout the spring, healthcare stocks like J&J fell out of favor as AI trading dominated the market. Then, as this trade was swinging in June, we saw a rotation toward lagging defensive stocks, including J&J (and its Club name, Cardinal Health, for that matter). Rotation winners have lost some steam lately. Time will tell what kind of market we will encounter in the coming months until the end of the year. But in a diversified stock portfolio, we believe J&J is a stock worth owning. Why we have it Johnson & Johnson has a strong product line and a strong line of drugs in the market. This 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 significant driver of growth in the coming years. Last purchased: June 1, 2026 Start date: April 8, 2026 Competitors: AbbVie, Merck, Bristol Myers, Medtronic (among others) JNJ YTD mountain Johnson & Johnson’s year-to-date stock performance. As a result, Johnson & Johnson had a solid, if not solid, quarter. In addition to strong performance domestically and internationally resulting in better-than-expected earnings, management raised its outlook for the full year. Particularly noteworthy is that the magnitude of the full-year earnings growth was greater than the magnitude of the increase in the second quarter. This suggests that strength is not a one-quarter phenomenon and management expects the momentum to continue in future quarters. One of the biggest flaws in the report is in the medical device business known as MedTech. There was weakness, particularly in the cardiovascular unit, where sales of Abiomed’s heart pumps fell. As we highlighted in our earnings preview, MedTech would be under close scrutiny following HCA Healthcare’s warning on Tuesday about a decline in surgical procedure volume. Additionally, within MedTech, cardio is one of the more closely watched units as it tends to grow faster and will increasingly have an impact on the growth of the segment once the orthopedics business is spun off. So this loss is notable, with cardio sales coming in at $2.4 billion versus the expected $2.55 billion. But it’s important to keep this in context. The overall MedTech unit continued to grow year over year, and this loss was partially offset by better-than-expected performance in the rest of the MedTech portfolio. MedTech reported that it increased its worldwide sales growth this quarter by 3.6% on an operational basis, including foreign exchange earnings, and by 4.5% on a reported basis. Moreover, while a loss of roughly $150 million for cardio is absolutely nothing, we should not forget that the company reported total sales of over $25 billion for the quarter. It also continues to be on track to achieve sales of over $100 billion this year for the first time in its 140-year history. We also value a management team that doesn’t hide from the problem, and CFO Joe Wolk addressed this shortcoming directly, giving us confidence that the team was unhappy with the results and the poor performance would not be addressed. In an interview with CNBC this morning, Wolk said: “We didn’t meet our standards on our cardiovascular unit. So it was a little slower work on that cardiovascular unit. [MedTech chair] Tim Schmid and his team are focused on solving this problem from this year to next year. So we think this is a more pressing issue, and I think overall it really reflects the scope of Johnson & Johnson. It doesn’t take perfect pressure for us to beat street expectations and take on guidance.” J&J’s pharmaceutical business, formally called its Innovative Medicine segment, grew worldwide sales 6.8% on an operational basis and 7.8% on a reported basis. But if you exclude the immunology drug Stelara, which lost patent protection and faces cheaper biosimilar competition, the drug business grew more than 14%. That’s important because one of the key bull cases for J&J is cancer. Growth in its portfolio reached 17.3%, boosted by nearly 50% growth in Carvykti, 19% growth in Darzalex and nearly 57% growth in Tecvayli. The trio are all treatments for multiple myeloma, a complex form of blood cancer in which patients may need several treatments to help fight the disease. Meanwhile, lung cancer drug Rybrevant also saw growth of more than 61% – CEO Joaquin Duato also noted that J&J asked the FDA to expand its license to cover head and neck tumors, and saw a 71% growth in sales of the antipsychotic Caplyta, and more than 41% growth of Spravato, an anti-depressive nasal spray. Sales of Intra-Cellular Therapies, which closed in April 2025, are clearly evident in J&J’s immunology portfolio after the FDA approved the drug to prevent relapse in schizophrenia, though investors are familiar with Stelara’s declines as Tremfya, whose sales are up more than 72% from a year ago, is an expanded label to address Crohn’s disease and ulcerative colitis, he said. That’s also an encouraging sign. Also notable was the review of Icotyde, which was approved by the FDA in March for the treatment of moderate to severe plaque psoriasis, with more than 10,000 patients starting treatment with the drug since its launch. Icotyde is the basis for our investment thesis, given its superior results and potential for new indications (similar to how Tremfya’s label has grown over time), he said. We think J&J also believes that the best-selling drug of all time is AbbVie’s Humira. However, AbbVie needed a new formulation. Like Icotyde, an IL-23 inhibitor, and Rinvoq, an oral JAK inhibitor, IL-23 inhibitors generally have a better safety profile because of their more targeted treatment method. As Skyrizi is injection-only, the same is true for J&J’s own Tremfya, with Icotyde representing the only oral IL-23 drug on the market, which puts it in a unique position in the market for treating plaque psoriasis and ulcerative colitis. Of course, this could also trigger concerns about cannibalizing Tremfya, if achieved. He said in today’s meeting: “There is a big increase in Icotyde. That hasn’t slowed the pace of Tremfya on psoriatic disease at all.” Given the strong results and the midpoint of guidance rising more than the magnitude of Wednesday’s earnings, we think there’s more room for leeway. That’s why we’re reiterating our buy-equivalent 1 rating and raising our price target to $275 from $265. Guidance J&J raised its full-year guidance on several metrics. Here’s where it stands as of April: 2026 outlook: Operational sales growth 5.9% to 6.9%, ranging from 6.5% to 7.1%. Reported sales increased from $100.3 billion to $101.3 billion, up 7.3% from $11.60 to $11.60 billion, from $11.45 to $11.65 at the midpoint, an increase of 8.2% from 7.1% previously. That means J&J expects adjusted pre-tax operating margin growth of at least 50 basis points from the prior year, and the team now expects it to fall into the $250 million to $300 million range, with the effective tax rate now expected to be between 17% and 18%, compared to the previous range of 17.5% to 18.5% (Jim Cramer’s Charitable Trust, long JNJ and It is CAH. See here for a full list of stocks.) As a subscriber to the CNBC Investment Club with Jim Cramer, you will receive a trade alert after Jim sends a trade alert before buying or selling a stock in his charitable foundation’s portfolio. After Jim discusses a stock on CNBC TV, he waits 72 hours before executing the trade. NO SECURE OBLIGATION OR DUTY EXISTS OR IS CREATED BY RECEPTION OF ANY INFORMATION PROVIDED, NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
