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Why Johnson & Johnson’s 4Q16 Revenues Could Grow

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Johnson & Johnson’s revenue estimates

Analysts expect a growth of 2.5% in Johnson & Johnson’s (JNJ) 4Q16 revenues to ~$18.3 billion, following an increase in sales of its blockbuster drugs including Remicade, Stelara, Olysio, and Zytiga among others, which will be more than offset by the negative impact of foreign exchange.

The above chart shows actual revenues and analysts’ estimates for Johnson & Johnson since 4Q14. There are various factors supporting expectations for future revenues, which we’ll discuss in the next part of this series.

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On an annual basis, Johnson & Johnson’s revenues have increased over the past few years, following the restructuring of its business segments and strong performance of some of its key products including Xarelto, Zytiga, Remicade, Stelara, and Olysio. The 2015 revenues fell ~5.7% to $70.1 billion as compared to 2014. However, the estimates show an increase of ~2.8% to $72.0 billion for 2016 and ~4.3% to $75.1 billion for 2017.

Segment-wise expectations for 4Q16

Johnson & Johnson’s business is divided into three business segments:

  • Pharmaceuticals
  • Medical Devices and Diagnostics
  • Consumer Healthcare

The Pharmaceuticals segment contributes nearly 47% of JNJ’s total revenues. The segment performance is expected to increase during 4Q16 mainly due to the operational performance of all products. The performance of this segment will be partly offset by the expected lower sales of the Hepatitis C products under the infectious disease franchise.

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The medical devices segment contributes nearly 35% of JNJ’s total revenues. The segment is expected to report operational growth that might be offset by its diabetes and orthopedics franchise. The divestiture of its Cordis business in October 2015 and the ortho-clinical diagnostics franchise in mid-2014 are further expected to negatively impact the growth rate for this segment. Growth for medical devices is expected to be driven by the orthopedics, surgery, and vision care franchise.

Consumer healthcare contributes nearly 18% of total revenues for JNJ. The company acquired NeoStrata in April 2016 for its skin care products franchise. This segment will be driven by operational growth in oral health products, over-the-counter products, and skin care products. However, the wound care franchise, women’s health products, and baby care franchise may partly offset growth during 4Q16.

We’ll discuss the company’s key products in the coming articles. Key drugs like Stelara compete with Abbott’s (ABT) Humira, and Xarelto competes with Bristol-Myers Squibb’s (BMY) and Pfizer’s (PFE) Eliquis. Investors can consider ETFs like the iShares Global Healthcare ETF (IXJ), which holds 8% of its portfolio in Johnson & Johnson, in order to divest the risk.

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