Johnson & Johnson Expected to Outperform Merck in Next Three Years

Analysts predict Johnson & Johnson (JNJ) will outperform Merck (MRK) in the next three years, driven by JNJ's superior profitability, better financial position, and robust demand for its medical devices business, despite Merck's strong revenue growth fueled by its blockbuster cancer drug Keytruda. The pharmaceutical industry's performance has significant implications for the healthcare sector and broader economy." This description focuses on the primary topic of the article (JNJ's expected outperformance of MRK), the main entities involved (JNJ and MRK), the context of the pharmaceutical industry, and the significant actions and implications related to the subject matter. The description also provides objective and relevant details that will help an AI generate an accurate visual representation of the article's content.

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Nitish Verma
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Johnson & Johnson Expected to Outperform Merck in Next Three Years

Johnson & Johnson Expected to Outperform Merck in Next Three Years

Johnson & Johnson (JNJ) is expected to outperform Merck (MRK) in the next three years, despite Merck's strong revenue growth driven by the success of its blockbuster cancer drug Keytruda. Analysts cite Johnson & Johnson's superior profitability, better financial position, and robust demand for its medical devices business as key factors behind their bullish outlook.

Why this matters: The performance of pharmaceutical companies like Johnson & Johnson and Merck has a significant impact on the healthcare industry and the broader economy. As these companies continue to innovate and compete, their successes and setbacks can influence the development of new treatments and the cost of healthcare for consumers.

Over the past few years, Merck has seen its revenue rise 23% between 2021 and 2023, compared to an 8% increase for Johnson & Johnson. Merck's growth has been primarily fueled by Keytruda, which accounts for around 45% of the company's total pharmaceutical sales. The drug, approved for several types of cancer, is being studied for more than 30 additional indications.

However, Johnson & Johnson's profitability and financial position remain superior to Merck's. JNJ's operating margin has only slightly declined from 26.6% in 2021 to 25.8% in 2023, while Merck's operating margin fell more significantly from 13.4% to 4.9% over the same period. Additionally, Johnson & Johnson has a lower debt-to-equity ratio of 8% compared to Merck's 9%, and a higher cash-to-assets ratio of 14% versus Merck's 7%.

Merck has also recently faced setbacks in its pipeline, with the discontinuation of a cohort in its Phase III study, due to futility, evaluating a co-formulation of Keytruda and vibostolimab for resected high-risk melanoma. This marks the second Keytruda study to have failed in less than two weeks, following a Phase III first-line endometrial cancer study that did not meet its primary endpoint.

In contrast, Johnson & Johnson's pharmaceutical business saw a 5% rise in revenue between 2021 and 2023, led by key growth drivers such as Darzalex and Stelara. The company's medical devices segment also experienced a 12% increase in revenue over the same period, highlighting the robust demand for its products.

Analysts also point to Johnson & Johnson's attractive dividend yield of 3.18%, which surpasses both the Large Cap Pharmaceuticals industry average of 2.51% and the S&P 500's yield of 1.58%. The company's current annualized dividend of $4.76 represents a 1.3% increase from the previous year and an average annual increase of 5.57% over the last five years.

Looking ahead, earnings growth prospects appear solid for Johnson & Johnson. The Zacks Consensus Estimate for 2024 earnings per share stands at $10.64, indicating a 7.26% increase from the previous year. With its superior profitability, better financial position, and strong demand across its business segments, Johnson & Johnson is well-positioned to outperform Merck in the coming years.

Key Takeaways

  • Johnson & Johnson expected to outperform Merck in next 3 years.
  • JNJ's superior profitability and financial position drive bullish outlook.
  • Merck's revenue growth driven by Keytruda, but profitability lags.
  • JNJ's medical devices segment sees 12% revenue growth between 2021-2023.
  • JNJ's dividend yield of 3.18% surpasses industry and S&P 500 averages.