Johnson & Johnson (JNJ) Drugs Lift Guidance, but Is 23 Times Earnings Fair?

Johnson & Johnson raised its 2026 forecast earlier this month. It now expects full-year sales of about $101.2 billion at the midpoint, a little higher than its July outlook, and slightly higher adjusted earnings per share too. The company is one of the 10 No-Brainer Stocks to Buy Now.

But the quarter behind that forecast was less tidy. Third-quarter sales grew 5.9% to $25.4 billion, yet adjusted earnings per share fell 7.5% to $2.59. Reported earnings per share dropped to $0.09 from $2.12, after a one-time charge tied to a proposed talc settlement and two deals.

J&J sells prescription drugs for cancer and immune diseases, and medical devices for the heart, the eye and orthopaedic surgery. The drug side is strong enough to carry the company for now, but the stock’s price assumes the device side catches up.

Drugs Are Doing the Heavy Lifting

Innovative Medicine, the drug business, grew 7.7% to about $16.8 billion. That came even though Stelara, an older immunology drug, pulled the segment’s growth down by roughly 690 basis points. Tremfya, Darzalex, Carvykti and Tecvayli made up the difference. J&J also reported new 48-week Tremfya data in Crohn’s disease this week, adding to a drug that already helps drive growth. All of it sits on a very profitable business, with an operating margin of 25.85% over the past 12 months. If you’re interested in healthcare names more broadly, we recently compiled a report on 10 Best Healthcare Stocks to Buy According to Hedge Funds.

Growth has also sped up over time, since revenue grew about 2.7% a year over the past five years but about 5.6% a year over the past three. CEO Joaquin Duato said the quarter showed that momentum, and that the company has a clearer path to double-digit growth by the end of the decade.

The Device Business Is Slowing Down

The device business, called MedTech, is where the quarter fell short. Its sales rose only 2.5%, well behind the drug side. Electrophysiology, Shockwave heart products, contact lenses and trauma surgery drove the gain, according to the company, but they were not enough to lift the whole segment.

CFO Joe Wolk said the quarter showed why a diversified business matters, and that J&J is confident it will pass $100 billion in annual sales for the first time. For investors looking for steady large-cap payers, check out 10 Best Blue Chip Dividend Stocks to Buy Right Now.

Fixes are already in motion. This week J&J launched a faster version of its Shockwave coronary catheter, which the company says cuts treatment time roughly in half. It is also separating its orthopaedics business, and that work added costs to the quarter. The talc charge covers a proposed resolution, not a finished one, so that cost is still open.

What the Price Assumes About Earnings

The stock trades at about 23 times estimated 2026 earnings. That is about 19% above the sector median of 19.53 and about 39% above J&J’s own five-year average of 16.81. Analysts expect earnings per share to grow just 3.05% this year, so near-term growth does not explain the premium.

Those multiples use adjusted earnings, which leave out the talc and deal charges that pulled reported earnings per share down to $0.09. So you’d be paying a premium for a drug business that is growing fast while a device business lags and profit per share barely moves. Investors who want more cheaper ideas can see our ranking of 10 Best Undervalued Stocks to Buy in October.

The Next Update Comes in December

The headline asks whether the price is fair, and the answer depends on the device side. With drugs alone, the premium looks hard to cover. It makes more sense if MedTech speeds up. J&J has planned an Enterprise Business Review for December, and the thing to listen for there is a plan to lift MedTech growth from 2.5% toward the drug business’s pace.

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This article is originally published at Insider Monkey.