Still life in this successful share tip
Results published this month were enough to propel one of America’s 20 biggest companies to new highs. Analyst Rodney Hobson explains why he still likes it. There’s also an update on Tesla.
29th October 2025 08:42
by Rodney Hobson from interactive investor
There was much to celebrate whenJohnson & Johnson (NYSE:JNJ)produced quarterly results. A splitting off of the orthopaedics business is potentially the best bit but it will not be a disaster if J&J hangs on to what is after all a big earner.
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Sales at the healthcare company rose strongly by 6.8% to $24 billion in the three months to the end of September, prompting a modest upgrade of guidance for the full year to 3.5-4% against the previous range of 3.2-3.7%.
Profits rose more than sales, which is always a good sign, although the headline figure of a 91% leap in net earnings was distorted by one-offs. The underlying rise of 16% to $2.7 billion was impressive enough, though. Margins were improved by a 26% reduction in spending on research and development.
Another good sign was that growth came across the board, with both arms of the business, innovative medicine and MedTech, keeping pace with the overall growth in sales.
Earnings per share are still set to grow 8.7% to around $10.85 and, although that guidance was not upgraded after the latest figures, it does look easily achievable, with the risk on the upside.
The biggest announcement, though, was a declaration of intent to spin off the orthopaedics business into what will be called DePuy Synthes at some time in the next 18 to 24 months. While J&J stresses that there is no guarantee this will happen, we can assume that it will.
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Namal Nawana, former chief executive of British medical device manufacturer Smith & Nephew (LSE:SN.), has already been recruited to take charge of what will be the largest company of its kind in the world, with sales approaching $10 billion a year. He has already set up a privately owned platform to develop consumer diagnostic technologies and would not be looking to take over at DePuy Synthes if he was not sure it was a done deal.
The reorganisation, although possibly disruptive, does make sense, allowing the separated companies to concentrate on what they do best. It is, however, too much to hope that this will at last signal the end of the continuous restructuring of the business that has gone on since the $21 billion takeover of Swiss-based Synthes in 2012, a mega-deal that the latest proposal effectively unwinds.
Source: interactive investor. Past performance is not a guide to future performance.
J&J shares have at last broken the $180 ceiling and pushed ahead to $190, where the price/earnings (PE) ratio is undemanding at 18.4 and there is a yield of 2.7%.
Hobson’s choice: I have rated the shares a buy several times, most recently in February when I lamented that the share price seemed stuck at $155. The best chance has now gone but the shares still rate a buy.
Update: At the risk of getting boring, it has to be said again: money invested in Tesla Inc (NASDAQ:TSLA) shares is as dead as a battery on an electric vehicle that has been driven beyond its range. Net income slumped 37% to $1.37 billion in the three months to September as Tesla continued to struggle.
It is true that revenue rose 12% to $28.1 billion, beating most forecasts, but in the end it is profits that count, and those did fall short of expectations. Ominously, production declined by 5% to fewer than 450,000 vehicles, with even production of the much-hyped Model 3/Y production slipping. While sales rose in the quarter, investors should bear in mind reports of collapsing sales in various markets over many months this year.
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Tesla claims it is still focused on “long-term growth” and “value creation” but it admits that it is difficult to assess the impact of global trade and economic issues on its sales, on energy supply and on supply chains. The company is shifting its emphasis to AI products, thus substituting one cash-absorbing energy-intensive line of business for another.
Yet the shares have again been pushing up against a well-established ceiling around $460, where the PE ratio is a staggering 300. Yes, that figure is correct. I have not added an extra zero by mistake. Needless to say, there is no dividend and no prospect of one. And shareholders are locked in with a quixotic owner who is a law unto himself and who is demanding a pay package of up to $1 trillion. Sell.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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