Johnson & Johnson delivered strong second-quarter 2025 results, with both the top and bottom lines exceeding expectations.\n\nDespite the loss of exclusivity (“LOE”) of its multi-billion-dollar product, Stelara, J&J’s Innovative Medicines unit once again outperformed expectations, with sales of all key drugs Darzalex, Erleada and Tremfya beating estimates. New drugs like Carvykti, Tecvayli, Talvey, Rybrevant and Spravato contributed significantly to growth. Importantly, its MedTech segment also outperformed expectations. Sales in the MedTech segment improved from the first-quarter levels, driven by strong momentum in Cardiovascular, Surgery and Vision segments despite continued headwinds in China.\n\nJ&J also raised its sales and EPS guidance for the year to reflect a strong operational performance coupled with currency tailwinds. The sales guidance was raised from a range of $91.0 billion-$91.8 billion to $93.2 billion-$93.4 billion. The sales range indicates growth in the range of 5.1%-5.6% versus the prior expectation of 2.6%-3.6%. The adjusted earnings per share guidance was raised from a range of $10.50-$10.70 to $10.80-$10.90, driven by top-line strength, favorable impact of foreign currency and lowered tariff impact. J&J halved its expectations for tariff-related costs this year from $400 million to $200 million. The tariff costs are exclusively related to its MedTech unit.\n\nIn response to the earnings beat and guidance raise, J&J’s shares rose more than 6% on July 16, reflecting investors' renewed optimism for the stock. However, a single quarter’s results are not so important for long-term investors, and the focus should rather be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play J&J stock in the post-earnings scenario.\n\nJ&J’s Diversified Business Model\n\nJohnson & Johnson’s biggest strength lies in its diversified business model as it is the only major health care company operating in both the medical devices and pharmaceutical sectors. In 2023,J&J separated its Consumer Health business into a newly listed company called Kenvue. The separation of Kenvue allowed J&J to focus on its core pharmaceutical and medical device business.\n\nIt has more than 275 subsidiaries, indicating that the business is extremely well-diversified. This diversification helps withstand economic cycles more effectively. J&J has 26 platforms with annual sales exceeding $1 billion. Its diversified business is allowing it to post top-line growth in 2025, despite LOE for a blockbuster drug like Stelara. Meanwhile, it has one of the largest R&D budgets among pharma companies.\n\nJNJ’s Innovative Medicine Unit: A Bright Spot\n\nJ&J’s Innovative Medicine unit is showing a growth trend. The segment’s sales rose 2.4% in the second quarter of 2025 on an organic basis despite LOE for Stelara and the negative impact of the Part D redesign. J&J expects continued growth in the second half of 2025 to be driven by its key products such as Darzalex, Tremfya, Spravato and Erleada as well as new drugs like Carvykti, Tecvayli and Talvey and new indications for Tremfya and Rybrevant.\n\nJ&J expects to generate more than $57 billion in sales in the Innovative Medicines segment in 2025. It expects the Innovative Medicine business to grow 5% to 7% from 2025 to 2030. J&J mentioned on the second-quarter conference call that it expects its oncology sales to be more than $50 billion by 2030 — quite an optimistic target in our view.\n\nMoreover, J&J believes 10 of its new Innovative Medicine products have the potential to deliver peak sales of $5 billion, including new cancer drugs like Talvey and Tecvayli, a newly acquired drug, Caplyta and pipeline candidates like nipocalimab, TAR-200 and icotrokinra (JNJ-2113).Nipocalimab was approved under the name Imaavy in April for treating generalized myasthenia gravis. TAR-200 is under priority review with the FDA for treating non-muscle invasive bladder cancer and is expected to be approved this year. Caplyta was added with the Apil acquisition of Intra-Cellular Therapies.\n\nJ&J’s MedTech Segment Shows Improvement in Q2\n\nJ&J’s MedTech segment sales rose 6.1% on an operational basis in the second quarter, improving from the first-quarter levels, driven by the newly acquired cardiovascular businesses, Abiomed and Shockwave, as well as in Surgical Vision and wound closure in Surgery. Moreover, improvements in J&J’s electrophysiology business also drove sequential growth. In the MedTech segment, increased adoption of newly launched products in Cardiovascular, Surgery and Vision is likely to drive growth in the second half. Sales are expected to be higher in the second half than the first half as the business moves past tougher first-half comps and new products gain momentum throughout 2025.\n\nHowever, the company continues to face headwinds in China. Sales in China are being hurt by the impact of the volume-based procurement (VBP) program. VBP is a government-driven cost containment effort in China. J&J expects continued impacts from VBP issues in China in 2025 as the program continues to expand across provinces and products.\n\nPatent Expiration of J&J’s Blockbuster Drug Stelara & Other Headwinds\n\nJ&J lost U.S. patent exclusivity of Stelara in 2025. The drug generated sales of $10.36 billion in 2024. The launch of generics is significantly eroding the drug’s sales and hurting J&J’s sales and profits in 2025. Stelara sales declined 42.7% in the second quarter of 2025.\n\nSeveral biosimilar versions of Stelara have been launched in the United States in 2025. According to patent settlements and license agreements, Amgen, Teva Pharmaceutical Industries, Samsung Bioepis/Sandoz and some other companies have already launched Stelara biosimilars this year. Stelara biosimilar competition is expected to accelerate throughout 2025 as the number of biosimilar entrants increases.\n\nIn addition, sales in 2025 are being hurt by the impact of the Medicare Part D redesign.\n\nJ&J’s Talc Suits & Pharma Tariffs Remain an Overhang\n\nJ&J faces more than 62,000 lawsuits for its talc-based products, primarily baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer. J&J insists that its talc-based products are safe and do not cause cancer. The company permanently discontinued the sales of its talc-based Johnson’s Baby Powder.\n\nIn April, a bankruptcy court in Texas rejected J&J’s proposed bankruptcy plan to settle its talc lawsuits after a two-week trial in Houston. J&J will go back to the traditional tort system to fight the lawsuits individually with its bankruptcy strategy to settle the lawsuits failing for the third time.\n\nThe uncertainty around tariffs and trade production measures has muted economic growth. President Trump has once again threatened to impose heavy tariffs, as high as 200%, on pharmaceutical imports. Trump’s repeated threats to impose tariffs on pharmaceutical imports are aimed at pushing American pharma companies to shift pharmaceutical production back to the United States, primarily from European and Asian countries. Trump has said that drugmakers have about one to one and a half years to bring production back to the United States before the new tariffs are imposed.\n\nJ&J has already committed to boosting manufacturing in the United States and has a plan to invest $55 billion over the next four years to ensure that all medicines consumed in the United States are manufactured domestically.\n\nJ&J Stock Price, Valuation and Estimates\n\nJ&J’s shares have outperformed the industry year to date. The stock has risen 15.1% in the year-to-date period against a 0.5% decline for the industry. The stock has also outperformed the sector and the S&P 500 Index, as seen in the chart below.\n\nJ&J Stock Outperforms Industry, Sector & S&P 500\n\nFrom a valuation standpoint, J&J is slightly expensive. In terms of the price/earnings ratio, the company’s shares currently trade at 14.74 forward earnings, slightly higher than 14.71 for the industry. The stock is, however, trading below its five-year mean of 15.70.\n\nJNJ Stock Valuation\n\nThe Zacks Consensus Estimate for 2025 earnings has risen from $10.64 per share to $10.83 over the past seven days, while that for 2026 has risen from $11.09 to $11.33 over the same timeframe.\n\nConsider Investing in J&J’s Stock\n\nJ&J considers 2025 to be a “catalyst year,” positioning the company for growth in the second half of the decade. J&J expects operational sales growth in both the Innovative Medicine and MedTech segments to be higher in the second half than in the first. While newly launched products should drive growth in the Innovative Medicines segment in the second half, the MedTech segment may benefit from new products and easier comps. J&J expects growth to accelerate from 2026 onward.\n\nJ&J is also rapidly advancing its pipeline, attaining significant clinical and regulatory milestones that will help drive accelerating growth through the back half of the decade. J&J has also been on an acquisition spree, with the latest acquisition of Intra-Cellular Therapies strengthening its presence in the neurological and psychiatric drug market.\n\nIn April, J&J's board authorized a 4.8% increase in its quarterly dividend, marking the company’s 63rd consecutive year of dividend increase.\n\nThe Stelara patent cliff and the potential impact of Part D redesign will be significant headwinds in 2025. The uncertainty around the talc lawsuits and pharma tariffs lingers. However, the company looks quite confident that it will be able to navigate these challenges.\n\nThe stock’s price appreciation this year, attractive valuation and rising estimates should encourage investors to bet on this Zacks Rank #2 (Buy) stock.

Should J&J Stock Be in Your Portfolio After Q2 Beat & Guidance Raise?

Johnson & Johnson reported strong second-quarter 2025 results, with sales and earnings exceeding expectations. Despite losing exclusivity for its blockbuster drug Stelara, the company outperformed in key segments like Innovative Medicines and MedTech. J&J raised its annual sales and EPS guidance, driven by currency tailwinds and reduced tariff costs. The stock rose 6% following the earnings report, but long-term investors should focus on the company’s diversified business model, strong R&D pipeline, and growth prospects in oncology and MedTech. Challenges include Stelara biosimilars, talc lawsuits, and potential pharmaceutical tariffs.