Here's How You Should Play JNJ Stock After Q1 Earnings Beat

Core Insights - Johnson & Johnson (J&J) reported better-than-expected first-quarter earnings, with adjusted earnings of $2.77 per share, a 2.2% increase year-over-year, and sales of $21.89 billion, up 2.4% from the previous year [1] - The company raised its 2025 sales expectations by $700 million due to the acquisition of schizophrenia drug Caplyta, adjusting the guidance range to $91.0 billion-$91.8 billion [2] - Despite tariff-related costs estimated at $400 million impacting the business, J&J maintained its adjusted EPS guidance of $10.50-$10.70 [3][4] Financial Performance - J&J's Innovative Medicines segment showed growth, with sales rising 4.4% in Q1 2025 on an organic basis, despite challenges from the loss of exclusivity for Stelara [8] - The company expects to generate over $57 billion in sales from the Innovative Medicines segment in 2025, with anticipated growth of 5-7% from 2025 to 2030 [9] - The MedTech segment faced headwinds, particularly in China, due to government procurement programs and competitive pressures [15][16] Business Model and Strategy - J&J's diversified business model, with over 275 subsidiaries and significant R&D investment, positions it well to withstand economic cycles [6] - The separation of its Consumer Health business into Kenvue allows J&J to focus on its core pharmaceutical and medical device operations [7] - Recent acquisitions, including Intra-Cellular Therapies, enhance J&J's presence in the neurological and psychiatric drug markets [30] Challenges and Risks - The loss of patent exclusivity for Stelara is expected to significantly impact sales, with a 33.7% decline in Q1 2025 [12] - The company faces over 62,000 lawsuits related to its talc-based products, which could create ongoing legal and financial challenges [18][19] - J&J's stock has outperformed the industry year-to-date, but valuation remains a concern with a forward P/E ratio of 14.41, slightly below the industry average [20][24] Future Outlook - J&J considers 2025 a "catalyst year" for growth, expecting operational sales growth to accelerate in the second half of the decade [30] - The company has a promising R&D pipeline that could drive future growth, despite current challenges in the MedTech segment and the impact of the Stelara patent cliff [31][32]