Johnson & Johnson (NYSE: JNJ) recently announced its plans to acquire Shockwave Medical for $13 billion, as part of its strategy to expand offerings in the cardiovascular intervention market. This move is expected to boost sales growth for J&J’s MedTech segment, which has seen a 10% annual increase in sales over the past three years. Shockwave generated $730 million in revenue in 2023, with estimated sales of $900 million in 2024. While Shockwave’s stock rose 26% in a month, JNJ’s stock saw a decline of 6%. The offer of $13 billion represents a 17% premium to Shockwave’s price on March 25.
Over the longer term, JNJ stock has seen little change, moving from $155 in early January 2021 to around $150 now, compared to a 40% increase for the S&P 500 over the same period. JNJ’s stock performance has been volatile, with returns of 9% in 2021, 3% in 2022, and -11% in 2023. In contrast, the S&P 500 saw returns of 27% in 2021, -19% in 2022, and 24% in 2023, indicating underperformance by JNJ. While beating the S&P 500 has been challenging for individual stocks in recent years, the Trefis High Quality Portfolio has consistently outperformed the benchmark index.
The uncertain macroeconomic environment with high oil prices and elevated interest rates raises questions about JNJ’s future stock performance. From a valuation perspective, there is potential for growth, with an estimated upside of over 15% based on a 17x P/E multiple and expected earnings of $10.70 per share for 2024. JNJ’s revenue of $85.2 billion in 2023 showed a 6% increase year-over-year, with growth in both the pharmaceuticals and medical devices businesses. Key growth drivers include Darzalex and Stelara, with plans for new drugs such as Carvykti and Spravato.
The MedTech segment’s strong growth can be attributed to strategic acquisitions, such as Abiomed and Laminar Inc., as well as the upcoming Shockwave acquisition. These moves are expected to support sales growth, particularly as the pharmaceuticals business faces competition for Stelara. JNJ’s overall sales are projected to rise at a 3% CAGR to $92.8 billion in the next three years, with faster growth in the MedTech segment. With JNJ stock trading at 14x forward earnings, there is potential for further growth from current levels.
While JNJ stock shows promise for higher levels, it is important to compare the company with its peers on key metrics. Analyzing how Johnson & Johnson’s peers are performing can provide valuable insights for investors. Additionally, considering Trefis Market Beating Portfolios can offer investment opportunities based on market trends and performance comparisons. Overall, the acquisition of Shockwave Medical and the growth prospects for JNJ’s MedTech segment position the company for continued success in the cardiovascular intervention market.
