Johnson & Johnson Stock Setting New Highs Ahead of Earnings – What To Expect

As Johnson & Johnson (JNJ) approaches its Q3 2025 earnings release tomorrow, the markets are keenly assessing the company's prospects amidst a complex landscape of legal challenges and strategic realignments. The stock currently trades above $189, up 7% in the month leading in to earnings, setting fresh highs along the way.

Analysts estimate an EPS of $2.76 for the current quarter (Q3 2025), $2.56 for the next quarter (Q4 2025), $10.85 for fiscal year 2025, and $11.41 for fiscal year 2026.

The backdrop to this earnings season is dominated by the ongoing talc litigation, highlighted by a recent $966 million verdict against J&J in favor of a plaintiff who alleged asbestos in the company's talc-based baby powder caused her mesothelioma. This follows the rejection of a $10 billion settlement proposal aimed at resolving tens of thousands of similar lawsuits. These legal headwinds create uncertainty, impacting investor sentiment and potentially future financial performance.

On the strategic front, Johnson & Johnson has been actively reshaping its portfolio. The $14.6 billion acquisition of Intra-Cellular Therapies, designed to bolster its presence in central nervous system (CNS) disorders, represents a significant investment in future growth.

Intra-Cellular's Caplyta, a treatment for schizophrenia and bipolar disorder depression, is expected to add approximately $0.7 billion in incremental sales and increase J&J's 2025 sales growth by 0.8%. The company has also committed to investing over $55 billion in U.S. manufacturing, signaling a long-term commitment to domestic production amid evolving trade policies.

The spin-off of the consumer health division into Kenvue has also reshaped Johnson & Johnson's focus, allowing it to concentrate on its higher-margin pharmaceutical and medical device businesses. This strategic move is expected to drive long-term growth and profitability.

While the market is understandably focused on the talc litigation, a contrarian view suggests that the long-term impact may be less severe than currently priced in. Johnson & Johnson has a history of successfully navigating complex legal challenges, and its financial strength provides a buffer against potential liabilities. Moreover, the company's aggressive defense of its products and its commitment to scientific evidence may ultimately limit its exposure.

Furthermore, the attention paid to the talc litigation may be obscuring the underlying strength of J&J's core businesses. The pharmaceutical pipeline is robust, and the company has a proven track record of innovation and market leadership. The acquisition of Intra-Cellular Therapies is a strategic move that positions J&J for long-term growth in a key therapeutic area.

Therefore, while acknowledging the risks associated with the talc litigation, the market may be overemphasizing the negative impact and undervaluing the underlying strengths of Johnson & Johnson's core businesses.

The earnings call will provide an opportunity for management to address concerns and outline its plans for navigating the challenges and opportunities ahead.