Lubin Investment · Blog

Johnson & Johnson (JNJ): Q2 2026 results, my verdict

2026-07-17 ·

JNJ: see the full analysis on Lubin Investment

Johnson & Johnson beat estimates and raised its full year guidance, yet the stock fell on the day of the report because of a segment that disappointed. This is my first full analysis of this healthcare giant: a high quality business, a dividend raised for 64 straight years, but a price that is no longer cheap by any measure today.

A healthcare giant I had not covered yet

Johnson & Johnson today is a two segment company: Innovative Medicine, pharmaceuticals, and MedTech, medical devices (surgery, cardiology, orthopedics). It was not always this way. Until 2023, the company also owned a consumer health division, home to household name brands like Tylenol, Listerine, and Neutrogena. That division was spun off as Kenvue, now trading separately. This strategic refocusing explains an oddity visible in JNJ's long term revenue series: an apparent drop from around 95 to 85 billion dollars between 2022 and 2023. This is not a management accident or a sign of decline, it is the mechanical result of a choice to refocus on pharmaceuticals and medical devices, two higher margin businesses.

On July 15, 2026, Johnson & Johnson reported quarterly revenue of 25.31 billion dollars, up 6.6% year over year, above the 25.05 billion analysts expected, and even raised its full year guidance. The company is targeting more than 100 billion dollars in annual revenue in 2026, a first in its 140 year history. And yet, the stock fell on the day of the report. Understanding why is the whole point of this article, and a good lesson in how the market sometimes reacts more to one detail than to an overall average.

Why the stock fell despite raised guidance

The Innovative Medicine division grew 7.8% to 16.38 billion dollars, above the 16.1 billion expected, driven by several flagship drugs. Darzalex, the company's largest product, topped 4 billion dollars in a single quarter for the first time, up 17.6%, a treatment used against multiple myeloma, a blood cancer. Tremfya, a treatment for certain inflammatory conditions, topped 2 billion dollars in quarterly sales for the first time. These two drugs and a few others (Carvykti, Tecvayli) comfortably beat expectations, even as Erleada, a prostate cancer treatment, fell short of forecasts.

The real problem of the quarter came from elsewhere: the MedTech division posted 8.93 billion dollars in sales, up 4.5%, but slightly below the 8.97 billion analysts expected. Management explained that sales at Abiomed, the subsidiary specializing in miniature Impella heart pumps (devices temporarily implanted to support the heart during high risk coronary procedures), fell 2% after a UK study cast doubt on the suitability of these pumps for certain high risk patients. This decline, in a segment smaller than pharmaceuticals but pitched as a long term growth driver, weighed more heavily on the stock than the overall pharmaceutical beat reassured investors. It is an instructive market reaction: an investor does not just judge an average, they also check whether every piece of the thesis still holds, and a targeted disappointment in a segment seen as strategic can do more damage than a good headline number provides comfort.

Johnson & Johnson's moat: patents, regulatory scale, diversification

A pharmaceutical company's competitive advantage rests first on patents: during a drug's protection period, generally around twenty years from filing, no competitor can sell a copy, giving the company real pricing power on that product. But this moat has an expiration date: once the patent lapses, cheaper generics or biosimilars can arrive and erode sales within a few years, a phenomenon the industry calls the patent cliff. That is why a pharmaceutical company must constantly renew its portfolio: the strong numbers from Darzalex and Tremfya this quarter are exactly that renewal in action.

The second pillar of the moat is the regulatory barrier: getting a new drug or medical device approved by health authorities costs hundreds of millions of dollars and often takes more than a decade, a hurdle very few players can clear at global scale. The third pillar is diversification: with dozens of drugs and devices sold worldwide, a single clinical failure or a single patent cliff never puts the whole company at risk, unlike a biotech that lives off a single product. On management, Joaquin Duato has led the company since January 2022 and has been its chairman since January 2023, with a stated goal of crossing 100 billion dollars in annual revenue for the first time as soon as 2026.

Why I trust generated cash more than accounting profit, here

For a bank, I often explain why I am wary of free cash flow and prefer net income. For Johnson & Johnson, it is exactly the reverse. Look at accounting net income over recent years: 14.7 billion dollars in 2021, 20.9 billion in 2022, a sudden jump to 35.15 billion in 2023, a drop to 14.07 billion in 2024, then a recovery to 26.8 billion in 2025. This roller coaster has little to do with the company's real operations year to year: the 2023 spike comes largely from a one-time accounting gain tied to the Kenvue spinoff, and the 2024 drop comes from charges booked to cover the expected cost of the talc litigation, the claim that certain legacy hair and cosmetic talc products contributed to cancer cases. This litigation remains open: 68,435 lawsuits were pending in the New Jersey multidistrict litigation as of July 2026, after a 2025 rejection of an 8 billion dollar settlement proposal that relied on a controversial bankruptcy maneuver. Mediation is underway this month to try to reach a global settlement on ovarian cancer claims.

While accounting net income absorbed these swings, Johnson & Johnson's free cash flow stayed remarkably steady: 20.2 billion dollars in 2021, 19.8 billion in 2022, 17.2 billion in 2023, 18.2 billion in 2024, 19.8 billion in 2025. A narrow band between 17 and 20 billion dollars, year after year, despite accounting charges and a divestiture gain that send net income swinging in every direction. This is exactly the kind of situation where free cash flow earns its keep: it ignores one-time accounting entries and only measures cash actually received and spent, a far more reliable signal here of the company's true earning power than reported net income.

Quality and price: what my filter says

My quality filter validates 7 out of 10 criteria for Johnson & Johnson: 21.5% net margin, share count down 2.48% a year, expanding margins, and a 22% return on tangible invested capital, a very good level. Five year sales growth comes in at negative 0.1% a year, a figure that looks alarming but is mechanically dragged down by the Kenvue spinoff, which reduced consolidated revenue with no relation to the real operating performance of the two remaining segments. The cash conversion cycle (the number of days between paying suppliers or producing inventory and collecting sales) comes in at 116 days, longer than in most sectors, but typical for pharmaceuticals, where drug inventories and reimbursement delays from insurers and public health systems naturally stretch this cycle.

The real point of attention is price. Johnson & Johnson's P/FCF comes in at 37.7 times, placing the stock at the 99th percentile of its own five year history: in other words, the stock has almost never been this expensive relative to its own generated cash over the past five years. Unlike the two banks I just analyzed for this same quarter, where I explained why I do not take my site's pricing model at face value, here free cash flow is precisely the most reliable measure: this model deserves to be taken seriously. It puts the reasonable buy price at 72.43 dollars against a share price of 253.04 dollars, a 71.4% premium. Johnson & Johnson is also a Dividend King, a company that has raised its dividend every year for at least 50 consecutive years: it just announced its 64th straight annual increase, the longest streak in the healthcare sector, with a yield of only 2.1% and a payout ratio of 60.8% of profit. Such a low yield for a Dividend King is also a sign that the price has run up faster than the dividend in recent years.

What I am watching

Three things to track: the outcome of the talc litigation, whose final financial scope remains uncertain until a global settlement is reached; MedTech's ability to fix the Abiomed issue and return in line with expectations; and the trajectory toward the 100 billion dollar annual revenue target in 2026, a historic first for the company if it holds.

How I read it

For a first look at Johnson & Johnson, this quarter illustrates well why I always separate quality from price, but in a direction unusual for me: quality here leaves almost no doubt, carried by a drug portfolio that keeps renewing itself (Darzalex, Tremfya) and a remarkably steady free cash flow despite accounting turbulence. It is price that raises questions: a P/FCF near the top of its own five year range no longer carries any of the discount usually associated with a Dividend King. Unlike JPMorgan and Bank of America, which I just analyzed for the same period and where I am wary of the cash based pricing model, here I take it seriously, and it says the market is no longer giving this stock any benefit of the doubt. You can find the full breakdown on the Johnson & Johnson analysis page and my methodology.

FAQ

Why does Johnson & Johnson's revenue appear to have dropped in 2023?

Johnson & Johnson spun off its consumer health division (Tylenol, Listerine, Neutrogena) as Kenvue in 2023. This is not a business decline, it is a strategic refocusing on pharmaceuticals and medical devices, which mechanically reduced consolidated revenue that year.

Why did the stock fall despite raised guidance?

The MedTech division missed analyst expectations (8.93 versus 8.97 billion dollars), hurt by a decline in Impella heart pump sales after a UK study. The market reacted more to this targeted disappointment than it was reassured by the overall pharmaceutical division beat.

What is a Dividend King?

A Dividend King is a company that has raised its dividend every year for at least 50 consecutive years. Johnson & Johnson just announced its 64th consecutive annual increase, the longest streak in the healthcare sector.

Why do I trust free cash flow more than net income for JNJ?

JNJ's net income has been heavily disrupted by one-time items in recent years: an accounting gain tied to the 2023 Kenvue spinoff, then charges linked to the talc litigation in 2024. Free cash flow, on the other hand, stayed steady between 17 and 20 billion dollars a year over the same period, a more reliable signal of the company's true earning power.

Should I buy Johnson & Johnson stock after these results?

The company's quality is solid and confirmed by this quarter, but a P/FCF of 37.7 times places the stock near the most expensive point of its own five year history. This is not personalized investment advice, do your own research.

JNJ: see the full analysis on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).