Johnson & Johnson just delivered a 32.9% operating margin in Q3 2025 - the highest in company history - yet it trades at 19.4x earnings while peers like Eli Lilly and Merck command 23-24x multiples. Something doesn't add up.
The market is missing a powerful transformation story. After spinning off Consumer Health (Kenvue), JNJ has become a focused pharma/medtech innovator with accelerating growth, expanding margins, and a post-STELARA portfolio that's already thriving.
Key Investment Highlights
• Record margins: Q3 operating margin hit 32.9%, demonstrating the power of the post-Kenvue business mix
• Post-STELARA success: Pharma revenue ex-STELARA grew +16% despite losing a $10B drug - the diversification worked
• TREMFYA trajectory: Growing +40% YoY, capturing ~50% of new IL-23 IBD starts, $10B+ peak sales potential
• Margin expansion path: Sustained 29-30% operating margins by 2027 (vs 27% in 2024) = $0.50-0.60 EPS impact
• MedTech acceleration: Ortho separation unlocks 6.5%+ growth in remaining portfolio (Shockwave, Abiomed, EP)
• Valuation gap: 19.4x P/E vs 22-24x peers despite 30%+ ROE, 10%+ EPS CAGR, and fortress balance sheet