Wells Fargo says there is a risk that Johnson & Johnson will guide lower

Investing.com — Wells Fargo analysts cautioned that Johnson & Johnson (NYSE:JNJ) may lower its earnings guidance for 2024 when the company reports third-quarter results, despite expectations of stable sales growth.

In a note to clients, Wells Fargo emphasized that while JNJ’s underlying sales growth target for 2024 is likely to remain intact, the company may revise its earnings per share (EPS) guidance downward due to recent acquisitions.

“JNJ expects EPS dilution of $0.24 from the V-Wave acquisition, which would lower 2024 reported EPS guidance from $9.97-$10.07 to $9.73-$9.83, all else equal,” noted Wells Fargo.

The analysts believe that if the V-Wave deal closes by the time JNJ reports Q3 earnings, the company will likely update its guidance accordingly.

However, they add that the potential reduction could be partially offset by a smaller foreign exchange (FX) headwind, which is now expected to have a neutral to slightly positive effect on EPS.

Wells Fargo is forecasting Q3 EPS of $2.09, below the consensus estimate of $2.18, and they note that the consensus may not fully reflect dilution from JNJ’s acquisition of Numab.

Their forecast includes an expected $1.25 billion impact from in-process research and development (IPR&D) related to the deal.

While sales growth guidance is expected to remain intact, the analysts warned that underperformance in JNJ’s Vision Surgical business and lingering impacts from anti-corruption policies in China could create headwinds for growth in the second half of 2024.

Finally, Wells Fargo highlighted that investors should watch for updates on the ongoing talc litigation, which JNJ is seeking to resolve through a voluntary prepackaged bankruptcy.