Earlier this week, J&J JNJ began the first-quarter earnings season for the drug and biotech sector with better-than-expected results.

J&J’s first-quarter adjusted earnings were $2.77 per share, which rose 2.2% from the year-ago period. Sales of $21.89 billion rose 2.4% from the year-ago quarter. Innovative Medicines segment sales rose 2.3% year over year to $13.87 billion. MedTech segment sales came in at $8.02 billion, up 2.5% from the year-ago period.

The company raised its sales expectations for 2025 by $700 million to reflect the addition of schizophrenia drug Caplyta from the acquisition of Intra-Cellular Therapies, which closed earlier this month. The sales guidance was raised from a range of $89.2 billion-$90.0 billion to $91.0 billion-$91.8 billion.

The adjusted earnings per share guidance was maintained in the range of $10.50-$10.70. J&J said that the earnings guidance range includes tariff costs and approximately 25 cents of dilution from the Intra-Cellular Therapies acquisition. Despite dilution from the Intra-Cellular deal and tariff costs, the company was able to maintain the adjusted EPS guidance due to reduced negative impact of Fx.

Though the company beat estimates and issued a better-than-expected revenue guidance, it estimated tariff-related costs of approximately $400 million, mainly from China, Canada and Mexico, which will impact its business in the near term. The newly proposed and existing tariffs are expected to mainly impact its MedTech business. The $400 million tariff impact does not include the potential tariff on pharma imports. The company did not provide any estimate for the potential pharmaceutical tariff impact.

Nonetheless, a single quarter’s results are not so important for long-term investors, and the focus should rather be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play J&J stock in the post-earnings scenario.

J&J’s Diversified Business Model

Johnson & Johnson’s biggest strength lies in its diversified business model. It operates through pharmaceuticals and medical devices divisions. It has more than 275 subsidiaries, indicating that the business is extremely well-diversified. This diversification helps it withstand economic cycles more effectively. J&J has 26 platforms with annual sales exceeding $1 billion. Meanwhile, it has one of the largest R&D budgets among pharma companies.

J&J separated its Consumer Health business into a newly listed company called Kenvue KVUE in 2023, allowing it to focus on its core pharmaceutical and medical device businesses. KVUE will report its first-quarter results in early May.

JNJ’s Innovative Medicine Unit is a Bright Spot

J&J’s Innovative Medicine unit is showing a growth trend. The segment’s sales rose 4.4% in the first quarter of 2025 on an organic basis despite the loss of exclusivity (LOE) for its multi-billion-dollar product, Stelara, and the negative impact of the Part D redesign. The Stelara LOE negatively impacted growth by 810 basis points. The Part D redesign hurt sales of drugs like Stelara, Tremfya, Erleada and PAH drugs.

In 2025, J&J expects growth in the Innovative Medicine segment in the face of Stelara biosimilar entrants to be driven by its key products such as Darzalex, Tremfya, Spravato and Erleada as well as new drugs like Carvykti, Tecvayli and Talvey, and new indications for Tremfya and Rybrevant.

J&J expects to generate more than $57 billion in sales in the Innovative Medicines segment in 2025. It expects the Innovative Medicine business to grow 5-7% from 2025 to 2030.

Moreover, J&J believes 10 of its new Innovative Medicine products, including new cancer drugs like Talvey and Tecvayli, and pipeline candidates, like nipocalimab and icotrokinra (JNJ-2113), have the potential to deliver peak non-risk-adjusted operational sales of $5 billion.

Patent Expiration of J&J’s Blockbuster Drug Stelara & Other Headwinds

J&J lost U.S. patent exclusivity of its blockbuster drug, Stelara, in 2025. The drug generated sales of $10.36 billion in 2024. The launch of generics is expected to significantly erode the drug’s sales and hurt J&J’s sales and profits in 2025. Stelara sales declined 33.7% in the first quarter of 2025.

A biosimilar version of Stelara was launched in certain European markets for some indications in July 2024. Several biosimilar versions of Stelara are expected to be launched in the United States in 2025. Amgen AMGN launched the first Stelara biosimilar, Wezlana, in January 2025, while Teva Pharmaceutical Industries TEVA launched Selarsdi in February 2025.

Both Amgen and Teva had entered into settlement agreements with J&J for their respective biosimilar launches. Stelara biosimilar competition is expected to accelerate throughout 2025 as the number of biosimilar entrants increases.

In addition, sales in 2025 are likely to be hurt by the impact from the Medicare Part D redesign, mainly sales of drugs like Stelara, Tremfya, Erleada and PAH drugs.

Slowing Sales in J&J’s MedTech Segment

Sales in J&J’s MedTech business are facing continued headwinds in the Asia Pacific, specifically in China. Sales in China are being hurt by the impact of the volume-based procurement (VBP) program and the anticorruption campaign. VBP is a government-driven cost-containment effort in China. In the first quarter, MedTech sales were also hurt by several one-time events, disproportionately impacting orthopedics.

J&J does not expect any improvement in its business in the Asia Pacific region, specifically in China, in 2025. Competitive pressure is also hurting sales growth in some MedTech businesses, such as PFA ablation catheters in U.S. electrophysiology. It expects continued impacts from VBP issues in China in 2025 as VBP expands across provinces and products.

Though issues in China have been hurting sales, J&J is successfully shifting its MedTech portfolio to high-innovation, high-growth markets, particularly in Cardiovascular. With the recent acquisitions of Shockwave in 2024 and Abiomed in 2022, J&J has become a category leader in four of the largest and highest-growth cardiovascular intervention MedTech markets.

J&J’s Talc Suits Remain an Overhang

J&J faces more than 62,000 lawsuits for its talc-based products, primarily baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer. J&J insists that its talc-based products are safe and do not cause cancer. The company permanently discontinued the sales of its talc-based Johnson’s Baby Powder.

Earlier this month, a bankruptcy court in Texas rejected J&J’s proposed bankruptcy plan to settle its talc lawsuits after a two-week trial in Houston. J&J will go back to the traditional tort system to fight the lawsuits individually with its bankruptcy strategy to settle the lawsuits failing for the third time.

J&J Stock Price, Valuation and Estimates

J&J’s shares have outperformed the industry year to date. The stock has risen 7.3% in the year-to-date period against4.5% decline of the industry. The stock has also outperformed the sector and S&P 500 Index as seen in the chart below.

JNJ Stock Outperforms Industry, Sector & S&P 500

Image Source: Zacks Investment Research

From a valuation standpoint, J&J is not very cheap. Going by the price/earnings ratio, the company’s shares currently trade at 14.41 forward earnings, slightly lower than 14.77 for the industry. The stock is also trading slightly below its five-year mean of 15.93.

JNJ Stock Valuation

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for 2025 earnings has declined from $10.58 per share to $10.51 over the past 30 days, while that for 2026 has declined from $11.07 to $10.99 over the same timeframe.

JNJ Estimate Movement

Image Source: Zacks Investment Research

Stay Invested in J&J Stock

J&J considers 2025 to be a “catalyst year,” positioning the company for growth in the second half of the decade. Considering the 470 bps of LOE headwind tied to Stelara, the low single-digit sales growth in the first quarter of 2025 was quite decent. J&J expects operational sales growth in both the Innovative Medicine and MedTech segments to be higher in the second half than in the first. While newly launched products should drive growth in the Innovative Medicines segment in the second half, the MedTech segment may benefit from new products and easier comps. J&J expects growth to accelerate from 2026 onward.

The company has an interesting R&D pipeline that can generate innovative products and further drive its growth. J&J has been on an acquisition spree lately, with the latest acquisition of Intra-Cellular Therapies strengthening its presence in the neurological and psychiatric drug market.

Along with the first-quarter results, J&J's board authorized a 4.8% increase in its quarterly dividend, marking the company’s 63rd consecutive year of dividend increase.

While J&J’s Innovative Medicines segment is showing a growth trend, the MedTech unit’s slowdown is a concern. The Stelara patent cliff and the potential impact of Part D redesign will be significant headwinds in 2025. It remains to be seen how the company navigates them in 2025. The potential impact of pharma tariffs in an uncertain economic landscape is another concern. The legal battle surrounding its talc lawsuits has created a bearish sentiment around the stock.

Those who already own this Zacks Rank #3 (Hold) company’s shares may stay invested for some time to see how the company achieves growth in 2025 amid the various challenges. However, investors looking for high-growth companies should refrain from investing in J&J’s stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Johnson & Johnson (JNJ) : Free Stock Analysis Report

Amgen Inc. (AMGN) : Free Stock Analysis Report

Teva Pharmaceutical Industries Ltd. (TEVA) : Free Stock Analysis Report

Kenvue Inc. (KVUE) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research