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This is the second day in a row that I'm writing in this newsletter about our favourite pharmaceutical and healthcare products holding Johnson & Johnson. Yesterday it was about the (mostly) ridiculous lawsuits that they face, and today it's about their third quarter results.
J&J reported quarterly sales and adjusted earnings per share (EPS) of $20.7 billion and $2.12. Those were both well ahead of consensus forecasts from the stock analyst community of $20.2 billion and $2.05 per share. More importantly, the company raised its full 2019 guidance to revenue of between $81.8 and $82.3 billion and adjusted EPS guidance of $8.62 to $8.67.
The consumer products and medical devices divisions did 'ok' for the period, but the star performer in these numbers was the pharmaceutical division. Cancer drugs did especially well, with Darzalex, Imbruvica and Zytiga leading the way. I like the sound of those names, although I hope to never have to use those products myself.
Drugs to treat arthritis-related immune system problems also sold well, with noteworthy performances from Stelara, Tremfya and Remicade. The launch of Spravato (the trade name for the new Esketamine antidepressant nasal spray) is going well. Next-generation blood thinner Xarelto contributed a solid $613 million in sales for the quarter. That's a big number!
The management team led by CEO Alex Gorsky and CFO Joe Wolk clarified that the approach on litigation is to take it case by case, region by region and product by product. Clearly a hip-replacement device which is faulty needs to be fixed and compensation paid, but allegations that baby powder causes cancer must be fought tooth and nail.
Most analysts believe that JNJ stock should be trading higher, around $170, instead of the $130 level it trades at now. After these results were released, the stock moved up by 1.6% to close at $132.84. We will keep accumulating them for clients at current levels. Broadly speaking, our thesis is that spending on healthcare around the world will continue to rise at a higher rate than the rest of the economy, and owning J&J shares is a good way to profit from that trend.