Valuentum Exclusive Analysis for the Discerning Investor

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Image Shown: Summary of Johnson & Johnson's first-quarter 2021 earnings results. Image Source: J&J.

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By Callum Turcan

On April 20, Johnson & Johnson (JNJ) reported first quarter 2021 earnings that smashed past consensus estimates. In conjunction with the solid earnings report, Johnson & Johnson raised its quarterly dividend 5% sequentially to $1.06 per share or $4.24 per share on an annualized basis, good for a forward-looking yield of ~2.5% as of this writing. The health care giant’s outperformance largely came from its ‘Medical Devices’ segment, which took a beating last year as the COVID-19 pandemic prompted widespread deferrals of elective surgeries. Last quarter, this part of the firm’s business grew its reported sales by 10.9% year-over-year, aided by strong underlying demand as elective surgeries began to resume in earnest in key countries worldwide and to a lesser extent, foreign currency tailwinds (on a non-GAAP adjusted operational basis, sales at this segment were up 8.8% year-over-year).

Johnson & Johnson updated its full-year guidance for 2021 during its latest earnings report. The update saw its forecasted non-GAAP adjusted operational sales growth rate for 2021 shift higher to 8.7%-9.9% (from 8.0%-9.5% previously) and the midpoint of its non-GAAP adjusted diluted operational EPS growth rate for 2021 shift higher to 15.8%- 17.7% (from 15.2%-17.7% previously). These growth metrics are on an annual basis and reflect Johnson & Johnson’s expectations for its underlying performance. During the first quarter of 2021, Johnson & Johnson’s GAAP revenues climbed higher 8% year-over-year and its GAAP operating income grew 14% year-over-year.

Back in March, Johnson & Johnson’s single-shot COVID-19 vaccine (developed by its Janssen Pharmaceuticals unit) received approval from the US for emergency use (as we covered here) and Conditional Marketing Authorization (‘CMA’) from the European Medicines Agency (‘EMA’). Recently, there have been reports that its COVID-19 vaccine could be responsible for blood clots in incredibly rare instances. This prompted the US to suspend use of Johnson & Johnson’s COVID-19 vaccine and the EMA to issue a warning regarding use of the vaccine. However, on April 20, the EMA put out a press release noting (moderately edited, emphasis added):

At its meeting of 20 April 2021, EMA’s safety committee (PRAC) concluded that a warning about unusual blood clots with low blood platelets should be added to the product information for COVID-19 Vaccine Janssen. PRAC also concluded that these events should be listed as very rare side effects of the vaccine.

In reaching its conclusion, the Committee took into consideration all currently available evidence including eight reports from the United States of serious cases of unusual blood clots associated with low levels of blood platelets, one of which had a fatal outcome. As of 13 April 2021, over 7 million people had received Janssen’s vaccine in the United States.

All cases occurred in people under 60 years of age within three weeks after vaccination, the majority in women. Based on the currently available evidence, specific risk factors have not been confirmed…

COVID-19 is associated with a risk of hospitalisation and death. The reported combination of blood clots and low blood platelets is very rare, and the overall benefits of COVID-19 Vaccine Janssen in preventing COVID-19 outweigh the risks of side effects.

Furthermore, the now famous director of the National Institute of Allergy and Infectious Diseases (‘NIAID’), Dr. Anthony Fauci, publicly noted that he expects that the US will resume use of Johnson & Johnson’s COVID-19 vaccine relatively soon (though potentially with restrictions and/or additional warnings). Public health authorities need to have access to every tool in their kit to bring an end to this health crisis, and Johnson & Johnson’s COVID-19 vaccine has proven to be quite effective.

Shares of JNJ moved higher during normal trading hours on April 20 as investors appreciated the guidance boost, dividend increase, and rock-solid financial performance seen during the first quarter of this year. When Johnson & Johnson reports its 10-Q SEC filing for its first quarter 2021 performance, we will have more to say on the name. J&J is included in both the simulated Dividend Growth Newsletter portfolio and the simulated Best Ideas Newsletter portfolio, and we continue to be huge fans of the company.

Concluding Thoughts

Earnings season is now in full swing, and so far we are pleased with the performance of the ideas included in the simulated newsletter portfolios. J&J's results were rock-solid, as outlined in this note, and we view recent operational updates (particularly at Vertex Pharma) quite favorably. J&J's strong Dividend Cushion ratio, respectable yield and impressive dividend growth track record keep it near the top of the list of our favorite dividend growth ideas for consideration.

Members interested in reading our thoughts concerning the latest earnings report from UnitedHealth Group Inc (UNH), an idea included in the Dividend Growth Newsletter portfolio, are encouraged to check out this article here. We continue to like what we see across the healthcare space, which as measured by the Health Care Select Sect SPDR ETF (XLV), has held up nicely, advancing ~8% year-to-date.

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Health Care Bellwethers Industry - JNJ, WBA, CVS, ISRG, MDT, ZBH, BAX, BDX, BSX, MTD, SYK, BIIB, GILD, ABT, ABBV, LLY, AMGN, BMY, MRK, PFE, VRTX, ZTS, REGN, UNH

Vaccine related: MRNA, AZN, PFE, BNTX, EBS

Opiod related: TEVA, ABBV, ENDP, MCK, ABC, CAH

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Callum Turcan does not own shares in any of the securities mentioned above. Johnson & Johnson (JNJ) and Health Care Select Sector SDPR Fund (XLV) are both included in Valuentum’s simulated Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio. Vertex Pharmaceuticals Inc (VRTX) is included in Valuentum’s simulated Best Ideas Newsletter portfolio. UnitedHealth Group Inc (UNH) is included in Valuentum’s simulated Dividend Growth Newsletter portfolio. Vanguard Consumer Staples ETF (VDC) is included in Valuentum’s simulated High Yield Dividend Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.