Johnson & Johnson Beats Earnings Estimates But Halts Vaccine Trial

Although Johnson & Johnson (NYSE:JNJ) reported third-quarter earnings and revenue that beat Wall Street's expectations, it also revealed that it would pause its COVID-19 vaccine trial over a participant's ‘unexplained illness'. Its share price fell 1.5% on Tuesday, to $149.55 per share.

Q3

Due to higher sales in its medical-device unit and higher demand for some of its drugs, J&J generated a revenue of $21.08 billion which exceeded both the estimate of $20.2 billion as well as last year's $20.72 billion. Adjusted earnings of $2.20 per share also exceeded Refinitiv's estimate of $1.98 per share. It also exceeded Forbes estimates of $1.99 per share on a revenue of $20.40 billion.

As a result, full-year guidance was raised, with expected adjusted earnings being in the range between $7.95 to $8.05. Sales forecast range has also been increased and now being in the range of $82 billion to $82.8 billion, up from the prior $79.9 billion to $81.4 billion.

Q2

In its previous quarter, the healthcare giant saw earnings drop by 35% compared to the same quarter last year with revenue down 11%. It was quite a shock as both earnings and revenue grew over the recent years. More precisely, over the last three years, EPS increased by an average of 8% with a 4% increase in revenue. But despite the declines, not all of the fundamental indicators were below average as management efficiency measurements were well above average. ROE amounted to 39.1%, and the profit margin to 34.4%.

The vaccine pause

The pharmaceutical giant was unclear if the patient was administered a placebo or the experimental vaccine when it announced it will be pausing its trial on Monday. But it's not a surprise for studies as large as this one that involves 60,000 patients to be temporarily paused. The trial, which was meant to yield results early next year, is one of four trials in phase 3 stage and one of six coronavirus vaccines being tested in the US. Late stage vaccine trials from Pfizer, Inc. (NYSE:PFE) and Moderna, Inc. (NASDAQ:MRNA) are expected to yield results as soon as this year.

The baby powder controversy

On October 5, Bloomberg reported that the company is close to reaching a settlement in some of the baby powder lawsuits that have plagued it for the last few years. The report claimed that the company will pay out another $100 million to settle approximately 1,000 cases, besides already being ordered to pay $2.1 billion, with a number of cases still pending.

Outlook

Shares of Johnson & Johnson hit a record high of $157 per share this year, riding trader enthusiasm around the company's COVID-19 vaccine which, unlike the other vaccine candidates, JNJ-78436735 requires only one dose.

J&J stands out as one of the most resilient businesses around because it is one of the most diversified healthcare companies in the world with multibillion-dollar business segments in consumer health, medical devices, and pharmaceuticals. With 58 consecutive years of dividend increases, it earned its Dividend Aristocrat status fair and square. The company might not deliver jaw-dropping earnings growth over the next few years but it has all that it takes to generate solid single-digit-percentage earnings growth and maybe even save lives and the global economy with its vaccine along the way.

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