Johnson & Johnson (JNJ) stock is experiencing a positive trading day following the announcement of its Q3 results for 2024.The earnings per share (EPS) surpassed estimates, although improved business performance was overshadowed by the recent acquisition of V-Wave, a cardiac device company.The company also revised its operational earnings forecast from $10.05 to $9.91. The V-Wave acquisition is expected to dilute earnings by approximately $0.24 per share in 2024.
JNJ’s pharma segment leads growth
JNJ’s pharmaceutical segment drove growth for the quarter, with Darzalex and Stelara contributing to the $22.5 billion in revenue, marking a 5% year-over-year increase.However, the MedTech segment fell short of analyst expectations, missing the $8.03 billion revenue target by $103 million.While this segment continues to benefit from acquisitions, it has not consistently met market expectations stemming from those investments.This situation has raised questions among investors about the effectiveness of the company’s merger and acquisition strategy.
JNJ: a company that thinks in decades
In the last two years, JNJ has invested over $30 billion in acquisitions across both the pharmaceutical and MedTech sectors, including the $16.6 billion purchase of Abiomed and the $1.7 billion acquisition of V-Wave.These acquisitions have not only impacted the company’s financial performance but also its share price, which has remained around the $160 level since the beginning of 2021.This stagnation has prompted investors to question the health of the company’s long-term strategy.Earlier this year, CEO Joaquin Duato stated, “Our M&A strategy is not going to change. We’ll continue to evaluate opportunities irrespective of sector and size. When we think about M&A, we think in decades, not opportunistically.”Despite a stagnant share price, the acquisitions are contributing to revenue growth. Abiomed, the most expensive acquisition, is performing ahead of expectations, according to Tim Schmid, head of the MedTech division.In normal circumstances, shareholders would be pleased with topline growth; however, it remains unclear how long it will take for the company to recoup its investments.The ongoing acquisition strategy raises concerns among investors. If this trend continues, any topline growth that fails to convert into cash profit may continue to burden both shareholders and the share price.The recent acquisition of V-Wave exemplifies these worries, as it will incur a $600 million R&D charge in the current quarter. Even in 2025, this acquisition is projected to drag earnings down by an additional $0.06 per share.Moreover, the additional milestones required to finalize the acquisition amount to $1.7 billion.Despite this, the company maintains a positive outlook on the acquisition, viewing V-Wave’s Ventura Interatrial Shunt device as vital for treating heart failure.Nevertheless, investors are primarily focused on share price appreciation and earnings improvement. When both fail to materialize, discomfort among investors is likely, which is precisely the situation unfolding at JNJ.More By This Author:Coinbase Stock Has 2 Catalysts: Is The CONY ETF A Better Buy?Three Reasons Why Marvell Technology Stock Is Poised For A RallyHere’s How HPE Plans To Dominate The AI Server Market
