Johnson & Johnson (NYSE:JNJ) is turning acquired heart technologies into growing sales. Adoption of treatments for hardened arteries supports that strategy, while competition and development spending raise the cost of maintaining its lead. A larger hospital network creates opportunities, but shareholders need ownership to deliver more than a bigger revenue base.
Johnson & Johnson has a forward P/E of approximately 21x and a trailing P/E of 31x. Trailing P/E uses the past 12 months of earnings; forward P/E uses forecasts. Growth and earnings adjustments both matter when interpreting that gap. Second-quarter 2026 GAAP EPS was $2.27, versus $2.90 after excluding intangible amortization and special items, including litigation and separation costs.
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Johnson & Johnson guides to 8.2% adjusted EPS growth at its 2026 midpoint, compared with approximately 7% implied by 2026 guidance from Abbott Laboratories (NYSE:ABT). At June 2026 quarter-end, their forward P/Es were 22x and 17x, respectively. That historical premium sets a useful hurdle alongside broadly similar growth expectations. The latter is a diversified device peer, although its diagnostics and nutrition mix differs from a business dominated by prescription medicines. Around 21x forward earnings, the valuation looks demanding until stronger device sales deliver durable cash returns.
A Larger Sales Network Must Improve Adoption
Johnson & Johnson acquired Shockwave Medical, Inc. in May 2024 in a cash transaction announced at approximately $13.1 billion of enterprise value. Its catheter technology uses pressure waves to crack calcium inside arteries. Established physician relationships, clinical support, and international distribution offer a route to put those products into more procedures while spreading commercial costs.
For Johnson & Johnson, adoption is visible: second-quarter sales at Shockwave Medical, Inc. reached $335 million, up 14.7% excluding currency effects. Both comparative quarters already included the business, making this growth more meaningful than simply adding acquired revenue. Results at Abiomed, Inc. were weaker. Acquired in 2022 at an upfront enterprise value of approximately $16.6 billion, before contingent payments, that business recorded a 2% sales decline as U.S. procedure volumes weakened.
Competition also requires continued investment. Abbott Laboratories completed enrollment in its pivotal U.S. coronary calcium-treatment trial in April. Potential alternatives could pressure pricing and require more clinical evidence and physician training. Distribution helps introduce technology; sustained physician preference determines whether that access produces profitable repeat sales.
Purchase Prices Set a Higher Earnings Hurdle
Johnson & Johnson reported a second-quarter MedTech pretax margin of 13.2%, down from 14.1%. Approximately $300 million of orthopedics separation costs obscured progress. Adding back only those costs produces a margin near 16.5%, by calculation. Higher research spending, commercial investment and tariffs also weighed on profitability. Separating temporary effects from lasting margin improvement reveals operating progress alongside those continuing costs.
Financing remains part of the return test for Johnson & Johnson. At the 2024 closing, management forecast that Shockwave Medical, Inc. would improve operating margins but dilute 2025 adjusted EPS by approximately $0.17 after financing costs. That historical forecast illustrates how acquisition debt can consume operating gains. Excluding amortization does not erase the purchase price or ongoing development spending.
Current funding capacity has improved. Second-quarter net debt was $28.2 billion, down from $31.9 billion a year earlier. Cash and current securities of $20.8 billion support funding needs, while first-half net interest expense of $105 million shows that financing still consumes earnings. These consolidated figures assess financial capacity, not either acquisition’s return.
Johnson & Johnson generated $8.76 billion of first-half free cash flow, up from $6.21 billion. Operating cash of $11.13 billion funded $2.37 billion of capital expenditure. Dividends consumed $6.36 billion, leaving roughly $2.40 billion before acquisitions and $4.25 billion of buybacks. For a company included among Insider Monkey’s 10 Best Dividend Stocks to Buy for Passive Income, acquisition returns matter because reinvestment and shareholder distributions compete for the same cash.
The forward P/E is above its year-end 2025 level of 18x, though below June 2026’s 22x. Raised earnings guidance and growing cancer and immunology medicines support some increase over last year’s valuation. Those products also help offset declining STELARA sales and fund device investment. The combined group’s multiple reflects pharmaceutical profits alongside MedTech.
Conclusion
Johnson & Johnson has credible adoption gains, improving funding capacity, and better MedTech profitability excluding separation costs. Its forward valuation looks demanding because the large purchase prices still require sustained profitable expansion. Stronger device growth, margins that absorb ongoing development costs, and rising cash after investment and financing would support a more favorable judgment. Higher acquired sales alone do not establish attractive acquisition returns.
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This article is originally published at Insider Monkey.
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