Wells Fargo Warns of Potential Lower Guidance from Johnson & Johnson

Wells Fargo analysts have raised concerns that Johnson & Johnson may reduce its earnings guidance for 2024 when the company reports its third-quarter results, despite expectations for stable sales growth.

In a recent note to clients, Wells Fargo indicated that while Johnson & Johnson’s targets for underlying sales growth in 2024 are likely to remain consistent, the company may decrease its earnings per share (EPS) forecast due to recent acquisitions.

Specifically, Johnson & Johnson anticipates an EPS dilution of $0.24 resulting from the V-Wave acquisition. This adjustment could lower its reported EPS guidance for 2024 from a range of $9.97 to $10.07 down to between $9.73 and $9.83, assuming no other changes.

The analysts suggest that if the V-Wave deal is finalized before Johnson & Johnson announces its Q3 earnings, the company may update its guidance to reflect this.

Moreover, they note that any potential reduction in EPS could be partially alleviated by a smaller foreign exchange headwind, which is now expected to have a neutral to slightly positive impact on EPS.

Wells Fargo is projecting Q3 EPS of $2.09, which is below the consensus estimate of $2.18, and they argue that the consensus may not fully account for dilution from Johnson & Johnson’s acquisition of Numab. Their forecast includes an anticipated $1.25 billion effect from in-process research and development related to this deal.

While the sales growth guidance is likely to remain unchanged, the analysts caution that underperformance in Johnson & Johnson’s Vision Surgical business and ongoing effects from anti-corruption policies in China could pose challenges to growth in the latter half of 2024.

Lastly, Wells Fargo emphasized that investors should pay attention to news regarding the ongoing talc litigation, as Johnson & Johnson seeks to resolve the matter through a voluntary prepackaged bankruptcy.