Over the past three months, Johnson & Johnson (NYSE:JNJ) has seen its stock rise by 12.8%, outpacing the broader industry’s 11.4% gain and the S&P 500. This performance has prompted investors to question whether now is the time to buy, sell, or hold J&J stock. A detailed J&J stock analysis is essential to make an informed decision, considering the company’s diversified business model, legal challenges, and future growth prospects.

Strengths Highlighted in J&J Stock Analysis

J&J’s primary strength lies in its diversified business model. In August 2023, J&J completed the separation of its Consumer Health business into Kenvue (NYSE:KVUE), leaving the company with a strong focus on its pharmaceuticals and MedTech segments. With more than 275 subsidiaries and 26 platforms generating over $1 billion annually, J&J’s diversification allows it to weather economic cycles more effectively than many of its peers.

The pharmaceutical division, now known as Innovative Medicines, has been a consistent performer, with a growth rate that exceeds the market average. This division is driven by blockbuster drugs like Darzalex, Stelara, and Tremfya, along with newer treatments like Carvykti and Tecvayli. J&J aims to grow this segment into a $60 billion business by 2025, with expectations of continued growth through 2030.

Challenges in J&J Stock Analysis: Legal Troubles and Patent Expirations

Despite these strengths, J&J’s ongoing legal issues present significant risks. The company faces more than 62,000 lawsuits related to its talc-based products, which have been linked to ovarian cancer claims. J&J has attempted to manage these claims through its subsidiary, LTL Management, which filed for bankruptcy to resolve the lawsuits. However, both bankruptcy filings were rejected by courts, and J&J has since proposed a settlement plan valued at approximately $8 billion over 25 years. This legal overhang remains a major concern for investors, as it could lead to substantial financial liabilities in the future.

Another challenge highlighted in J&J stock analysis is the upcoming patent expiration of Stelara, one of its top-selling drugs. Stelara generated $5.3 billion in sales in the first half of 2024, but with biosimilars expected to enter the market in 2025, J&J could face a significant drop in revenue. The launch of these generics, particularly in the U.S., could erode the profitability of J&J’s pharmaceuticals segment.

Mixed Performance in MedTech and Future Outlook

J&J’s MedTech segment, which includes its medical devices business, has shown mixed results. While global procedure growth and new product launches have contributed to the segment’s performance, challenges in key markets like China have tempered growth. The second quarter of 2024 saw weaker-than-expected sales in China due to the impact of the volume-based procurement program and competitive pressures in the U.S. As a result, J&J’s MedTech growth fell below expectations, raising questions about the segment’s ability to drive future earnings.

From a valuation perspective, J&J’s stock appears attractive compared to its industry peers. The stock trades at a forward price-to-earnings ratio of 15.61, lower than the industry average of 20.53 and below its five-year mean. However, the recent earnings guidance cut due to acquisition-related costs has led to downward revisions in earnings estimates for 2024 and 2025, as shown in recent Consensus Estimate data.

Conclusion: A Cautious Approach to J&J Stock

Based on this J&J stock analysis, the company presents a mixed investment case. While the Innovative Medicines segment continues to show robust growth, ongoing legal challenges and the looming patent expiration of Stelara are significant headwinds. Additionally, the MedTech segment’s performance in key markets remains uncertain.

For new investors, it may be prudent to avoid buying J&J stock at this time, given the legal risks and potential for slower growth in the coming quarters. However, current shareholders might consider holding onto their shares to see how the company navigates these challenges in the second half of 2024. In the meantime, investors looking for better growth prospects might explore alternatives like Eli Lilly (NYSE:LLY), which has a more favorable outlook and stronger near-term growth potential.

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