The large-cap pharma industry had a good 2019 backed by strong quarterly results, bullish outlook for 2020, pipeline successes, demand-driven growth in sales of new products and a flurry of M&A deal announcements. Despite witnessing significant volatility this year due to its litigation issues, Johnson & Johnson’s (JNJ - Free Report) stock still managed to outperform the industry. The drug & consumer giant delivered strong quarterly results, raised its sales guidance thrice in 2019 and witnessed rapid progress in its pipeline. Here are four reasons to invest in the stock this year.
Favorable Rank, Rising Share Price and Earnings Estimates: J&J currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
J&J’s shares have outperformed the large-cap pharma industry in the past year. The stock has returned 16.1% in the said time frame compared with the industry’s increase of 14.8%.
J&J’s earnings estimates have risen from $9.07 per share to $9.08 for 2020 over the past 30 days.
Its earnings surpassed expectations in the last four quarters, the average positive surprise being 4.3%.
The company is expected to record earnings and sales growth of 4.8% and 4.2%, respectively in 2020.
Above Market Performance of Pharma Unit: J&J’s Pharma segment is performing above-market despite currency headwinds and the impact of biosimilar and generic competition on sales of some key drugs like Remicade and Zytiga. Please note that J&J markets Remicade in partnership with Merck (MRK - Free Report) .
Pharmaceutical segment sales rose 6.2% in the first nine months of 2019 on an operational basis. The sales increase was led by the company’s oncology drugs, Imbruvica and Darzalex as well as psoriasis treatment, Stelara. Meanwhile, other core products like Stelara, Simponi/Simponi Aria and Invega Sustenna and new immunology medicines like Tremfya also contributed to growth. Importantly, J&J seems confident about its Pharmaceutical business continuing to deliver above-market in 2020.
Rapid Pipeline Progress: This year, J&J announced promising data from several pivotal studies and made rapid progress with its pipeline and line extensions. J&J gained FDA approval for two new drugs in 2019 — Spravato (esketamine) for treatment-resistant depression and Balversa (erdafitinib) for metastatic urothelial cancer. J&J believes that both Spravato and Balversa have the potential for more than $1 billion of peak revenues. Moreover, new products launched in late 2017/2018, Tremfya for plaque psoriasis and Erleada for prostate cancer, are off to a promising start in 2019.
Among line extensions, a key FDA approval was that of Imbruvica in combination with Roche’s (RHHBY - Free Report) Rituxan for Waldenström's macroglobulinemia, a rare form of Non-Hodgkin’s lymphoma and in combination with Roche’s Gazyva (obinutuzumab) for first-line chronic lymphocytic leukemia/small lymphocytic lymphoma. Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. (ABBV - Free Report) . It also gained approvals for some of its other drugs like Stelara, Darzalex, Invokana, Erleada and Xarelto in an expanded patient population.
Medical Devices Segment Sales Improving: The company is also working on turning around its Medical Devices business by developing innovative products, expanding global presence and implementing novel commercial models. Sales in the segment improved in 2017 and 2018 from 2016 levels. J&J is optimistic that this segment will deliver above-market growth by 2020, driven by innovation, strategic partnerships, portfolio management and new business models
J&J faces a slew of lawsuits, which allege personal injuries to patients caused by the use of its medicines, mainly its talc and opioid products. These lawsuits have resulted in uncertainty.
Meanwhile, quite a few products in the company’s portfolio are facing generic competition. Nevertheless, J&J’s sales and earnings growth is expected to accelerate in 2020, supported by above-market performance of its Pharmaceuticals unit as well as continued improvement in the Medical Devices segment. It also plans to improve the profitability of its Consumer unit while continuing to optimize its portfolio for competitive growth. Also, share buybacks and restructuring initiatives should provide bottom-line support.
With several pivotal data readouts and regulatory milestones expected in 2020, the stock should remain afloat.
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