Sales for J&J beat expectations slightly while profits surpassed expectations by a small margin. Over the trailing 4 quarters, sales have missed expectations once and EPS has missed twice. Both figures have consistently beat estimates by narrow margins. Total drug sales were up just under 8% and total device sales were up about 4.5% from the same quarter one year prior. Growth rates for both drugs and devices were slightly faster than the prior quarter.

Looking within drugs, the main story is how fast newer products are replacing older products in the portfolio. Sales of Stelara, once a nearly $11 billion blockbuster, came in at $740 million for the quarter. That's down more than 55% from a year ago as cheap generics are now allowed to compete against the drug. Newer cancer drugs, however, grew rapidly enough to offset most of the losses from Stelara.

Growth of devices slowed from the prior quarter as heart-pump company Abiomed had a disappointing quarter. That weakness was offset by strong growth from Shockwave, up nearly 15%.

J&J spends between 14% and 18% of its revenue on research and development every quarter. Most of that spending is going toward cancer drugs, along with enhancements to its surgical robot and heart devices. Total revenue increased from about $79 billion in 2021 to $94 billion in 2025. Reported EPS has fluctuated quite a bit due to one-time items like the spin-off of part of the company and one-time legal charges. If we look at adjusted profits that strip out these one-time costs, we can see that J&J's adjusted profits have been growing slowly but steadily from about $9.80 per share to $10.79 per share over that same five-year period.

Our View: We prefer to focus on the adjusted profits rather than GAAP profits as one-time legal charges and corporate actions distort that number. By that measure, J&J is earning steadily but not particularly rapidly. We think this positions J&J more like a mature stable company than a high growth company.

Growth Drivers and Strategic Bets

Here are some factors that could power growth in the future. The largest factor is continued growth from cancer drugs. The key name here is Carvykti, which could ultimately become a $5-$6 billion product globally, though again, we don't see any guarantees with drug development. This is our estimate alone.

For immune-disease, we expect most of Stelara's downturn to occur in late 2026 or early 20 27. That's not unusual for this type of patent cliff. Beyond that point, newer immune drugs like Tremfya should be large enough to offset the decline.

In devices, Shockwave has the clearest growth story at the moment. Abiomed will see temporary weakness due to fewer hospital procedures being performed. We don't think this means permanent loss of market share. The introduction of Ottava has the most long-term growth potential in devices. However, it will take time for a new hospital device to gain traction, so it likely won't be a material contributor to sales for several years.

The company also derives a huge portion of its profits from outside of the U.S. This offers some protection if drug pricing regulations become more stringent in the U.S.

As for competition, rivals include Merck, Pfizer, AbbVie and Eli Lilly in drugs and Medtronic, Stryker and Intuitive Surgical in devices. These are all big companies with tons of resources, so JNJ needs to continue developing new drugs just to maintain its current market share.

Our view: We think newer cancer drugs and heart devices will be large enough to replace Stelara's revenue eventually, but we're not quite there yet. We would like to see a few more quarters of accelerating growth from cancer drugs before feeling comfortable that the worst is behind us.

Capital Allocation and Balance Sheet

J&J Has A Mountain Of Cash. This past year, the company generated approximately $27.6 billion in cash from operating activities. After investing $5.4 billion in property/equipment, JNJ was left with about $22.2 billion of free cash flow. Of that amount, the business returned $12.6 billion to shareholders via dividends and used another $8.1 billion to buy back shares.

Heading into Q3, Johnson & Johnson had approximately $20.4 billion in cash. The company’s debt levels have increased slightly over the past few years as management financed the acquisitions of Abiomed ($13 billion) and Shockwave ($17 billion) with borrowings. However, net debt to EBITDA is still at manageable levels for a large-cap healthcare company like Johnson & Johnson.

Legal Matters Are Looming Large. As we wrote above, J&J offered to pay $5.5 billion to resolve approximately 76,000 pending claims. The company hopes to pay out up to $3 billion in 2027, with subsequent payments to be made in the years following. Remember that deal is not done yet, as nearly all plaintiffs need to accept the offer and a judge must approve the deal.

J&J management has focused on three things over the past few years: increasing the dividend (something management has done every year for decades), making smaller strategic acquisitions (Notably in oncology and cardiac devices), and buying back shares when the price is right. In August 2026, Johnson & Johnson announced a change to its drug leadership team, promoting Tom Cavanaugh to lead Innovative Medicine.

Our Take. We believe Johnson & Johnson hitting its legal mark with the talc lawsuits removes significant overhang that has been priced into the stock for years. The settlement could easily allow JNJ to simply drift higher from here in terms of share price, even if the underlying business doesn’t improve much. Additionally, we are comfortable with how management has been allocating capital and view incremental debt from device deals as a fair price to pay for growth.

Competitive Benchmarking