As at 27 July 2026

Executive Summary

Key highlights

In this report, we review the 2Q26 results released in July 2026:

Financial results at a glance:

• Revenue: Total revenue grew by 6.6% YoY from $23.7 billion in 2Q25 to $25.3 billion. Both the Innovative Medicine and MedTech segments drove growth.

• Profitability: Gross margin held steady at 73.3%, on favourable operational drivers and currency, partly offset by unfavourable Innovative Medicine product mix and MedTech tariff impact. Operating margin was consistent with the comparative period at 33.5%. R&D spend increased to $3.7 billion in the quarter, up 3.9% YoY ($7.2 billion YTD).

• Geographic mix: US sales rose 7.3% to $14.5 billion, while reported international sales rose 5.7% (3.4% in constant currency terms) to $10.8 billion, while MedTech continued to face volume-based procurement pricing pressure in China.

• Net income: Reported net earnings were roughly flat YoY at $5.53 billion (vs $5.54 billion), with diluted EPS of $2.27 (vs $2.29) reflecting higher litigation charges and a higher effective tax rate. Adjusted net earnings rose 5.7% to $7.08 billion and adjusted EPS rose 4.7% to $2.90, beating consensus of $2.85.

• FY2026 outlook: Management guided for reported sales of $101.1 billion, representing growth of 7.3%, and adjusted EPS of $11.68, showing an 8.2% rise. Key headwinds flagged include continued Stelara erosion, a 460 basis points (bps) drag on total company sales this quarter, MedTech tariffs of approximately $500 million guided for the full year, and the unresolved talc litigation overhang.

Analyst thesis

Our recommendation is based on:

• A diversified portfolio: Johnson & Johnson’s (JNJ's) Innovative Medicine and MedTech segments span oncology, immunology, neuroscience, and cardiovascular medicine, with 28 products and platforms each generating over $1 billion in annual revenue. This product diversity cushions the impact of any single patent cliff and supports a more resilient growth profile.

• An oncology franchise targeting $50 billion in revenue by 2030: Darzalex and Carvykti continue to scale rapidly, with Carvykti sales up 62% year-on-year (YoY) in 1Q26, while further approvals (Tecvayli plus Darzalex Faspro) and Phase 3 data extend the growth runway well beyond the Stelara biosimilar cliff.

• A portfolio reshaped for higher growth: the planned separation of the DePuy Synthes orthopaedics business (targeted for mid-to-late 2027) is expected to lift the MedTech segment’s standalone growth rate and operating margin.

• A capital return tempered by litigation risk: 64 consecutive years of dividend increases reflect balance-sheet discipline, although unresolved talc litigation, roughly 76 000 pending cases, and a reserve with a present value of approximately $3.7 billion, remain an uncapped tail-risk overhang.

• Valuation: JNJ's current forward P:E of approximately 21x sits at a premium to both its five-year historical average and the broader pharma peer set (~16.8x), suggesting the market has already priced in a substantial portion of the anticipated oncology-led recovery, and the expected Stelara offset.