Timing is everything, even when it comes to earnings reports. As an example of this, Johnson & Johnson (NYSE: JNJ) delivered a beat on the top and bottom lines and raised its full-year revenue guidance, but JNJ stock was down in early trading in sympathy with the broader market sell-off.
Revenue of $23.99 billion was 1% higher than the $23.76 billion expected. Earnings per share (EPS) of $2.80 were 1.49% higher than expectations for $2.76. The company also raised its full-year revenue guidance to a range between $93.5 billion and $93.9 billion. Both the high and low end were up slightly from the prior guidance for between $93.2 billion and $93.6 billion. The low end is above the consensus estimate for $93.4 billion, too.
The downturn in the stock after earnings may simply be a pause in the recent growth story. JNJ stock is up 32% this year as investors believe the company is entering a new area of growth stemming from its pipelines in its innovative medicine and MedTech business units.
FDA Warning Weighs on Sentiment Despite Strong Outlook
In addition to the broad market volatility, investors did have a tangible reason to sell JNJ stock post earnings. That came from the Food & Drug Administration (FDA), which on Friday, October 10, gave the go-ahead for a note warning to be placed on JNJ’s Carvykti drug. The note, which will be added to the medication’s label, states that the drug could have a fatal impact on the stomach or intestines. This is the strictest warning the FDA can give.
For context, Carvykti is a key part of Johnson & Johnson’s oncology portfolio. The drug was jointly developed with Legend Biotech to treat multiple myeloma, a blood cancer that affects the bone marrow. The FDA approved it for intravenous use in March 2022.
Although the company doesn’t break out specific revenue for Carvykti, its overall oncology portfolio accounted for approximately 21% of the total revenue for the company’s Innovative Medicines division.
Spinoff Highlights Focus on High-Margin Growth Areas
Apart from the top-line numbers, there was another highlight from the earnings report. That was Johnson & Johnson’s announcement that it was spinning off its orthopedics business. The business will operate under the name DePuy Synthes.
That business accounted for approximately 9.5% of the company’s total sales in the quarter. However, in making the announcement, management remarked that the company’s revenue growth was below that of the rest of its portfolio.
As evidence of that, the company reported that revenue from the orthopedics division grew by 2.4% year over year, which was less than half of the overall medical devices division that posted year-over-year revenue growth of 5.6%.
Investors will remember that Johnson & Johnson spun off its consumer products division into Kenvue just two years ago. This is another example of how the company is focusing on its high-margin businesses while giving an area like orthopedics a better chance to compete and innovate as a stand-alone company.
Valuation and Technicals Suggest Healthy Pause for JNJ Stock
In early market trading after earnings, JNJ stock was down about 1.24% at $188.24. This puts it near the upper limit of its Bollinger Bands. Resistance can be seen around $195, and short-term support is near $182.80. This also sets a range for the stock, which is likely to move sideways, barring a significant catalyst to move the stock in either direction.
The bullish move in the stock ahead of the report puts the stock well ahead of its 50-day and 20-day simple moving averages (SMAs). That move, along with an RSI around 76, suggests overbought conditions may be present. However, the MACD remains positive and rising, which indicates that the bullish momentum may not be over.
Following an overall strong report, investors should view this as a healthy stabilization in the stock after its 22% rise in the last month.
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