$100B FY26 Guide, TREMFYA +65%, Daubert Special Master Largely Favorable — Maintaining Outperform, FV $190–220

Rating Action

This print maintains the Outperform rating we moved to at Q3 2025. The arc:

• Q2 2025 (Initiating at Hold): best-in-class diversified franchise; growth-through-STELARA-cliff math validated; but five reservations underpinned Hold over Outperform: STELARA biosimilar curve still steepening into 2H, talc Daubert binary, MedTech segment margin compression ~350bps, post-print breakout removed cheap-setup cushion, and 2H pipeline catalysts (TAR-200, CAPLYTA-MDD, subcu RYBREVANT) earnings-unvalidated.
• Q3 2025 (Upgrading to Outperform): all five reservations cleared in a single print. STELARA Q3 −42% in line (HUMIRA-Y2 analog — cliff plateauing not steepening); DePuy Synthes orthopedics spin announced (structurally adds +75-100bps to remaining MedTech growth and margin); Daubert rulings now bounded "by 2026" with management on-record confident; pipeline catalysts substantively validated (INLEXO approved, CAPLYTA-MDD and subcu RYBREVANT pending, icotrokinra filed); and management pre-flagged 2026 above current Street consensus (>5% revenue, +$0.05 to $11.39 EPS). The diversified compounder thesis was decisively confirmed; we upgraded to Outperform.
• Q4 2025 (Maintaining Outperform): the Q4 print and FY26 framework validate the Q3 upgrade on every axis. (1) Clean Q4 + FY26 framework: Q4 op sales +7.1% / full-year op +5.3% / FY26 op +5.7-6.7% to $100B at midpoint with $11.53 reported EPS / $11.28-11.48 op EPS — absorbing tariff step-up, GILTI, voluntary government access agreement, and share count dilution. (2) STELARA trough confirmed: Q4 STELARA −48.6% on the HUMIRA Y2 analog; the offset from TREMFYA (+65%), oncology (+21% FY), and CAPLYTA continued. The trough quarter we identified at Q3 has materialized as expected. (3) Daubert framing constructive: special master report excluded plaintiff junk-science expert opinions and endorsed virtually all of JNJ’s expert opinions; appealable parts are technical Rule 702 gatekeeping issues; the most damaging case theories are now excluded. The talc tail-risk distribution materially compresses.

The thesis we are now underwriting: JNJ is the only large-cap healthcare name with line-of-sight to double-digit revenue growth in the second half of the decade, on a $100B+ revenue base, with a $50B oncology franchise, a $10B+ TREMFYA, an unfolding bladder-cancer platform (INLEXZO + TAR-210), a successful neuroscience expansion (CAPLYTA), a $9B cardiovascular MedTech franchise growing 15%, a robotics path (OTTAVA + MONARCH), and a meaningful $5B+ pipeline option in milvexian. The orthopedics spin (mid-2027) adds a structural margin and growth uplift that will rerate the remaining MedTech business. The valuation needs to compound from the present level to keep up with the operational compounding — and that combination is what supports Outperform.

Results vs. Consensus

Segment Performance

Innovative Medicine — Q4 $15.8B (+7.9% op), FY >$60B (+5.3% op)

Q4 was the cleanest acceleration quarter of the year. STELARA −48.6% drove a 1,110bps in-segment headwind (vs. 1,070bps in Q3 and 1,170bps in Q2); the offset broadened materially:

• Oncology +~21% FY25.
  • DARZALEX Q4 +24.1% on 6.5-point share gains (12 points in frontline); FY +22% to $14B+ — now the largest pharma brand in the company.
  • CARVYKTI Q4 +63.2% to $555M; 10K+ patients infused cumulatively; the only CAR-T with superior overall survival vs. standard-of-care.
  • TECVAYLI Q4 +18.9%; TALVEY Q4 +73.1%; MajesTEC-3 (TEC+DARA) showed 83% reduction in disease progression/death as early as 2L; MajesTEC-9 monotherapy showed reduction in progression/death in CD38- and lenalidomide-refractory patients; FDA offered an unsolicited priority review voucher on MajesTEC-3.
  • RYBREVANT/LAZCLUZE Q4 +76.5% to $216M; FASPRO subcutaneous approved in Q4 (first SQ for EGFR-mutated NSCLC).
  • INLEXZO (formerly TAR-200) launching in BCG-unresponsive non-muscle invasive bladder cancer; permanent J-code anticipated April 2026; SunRISe-3 (BCG-naive) and SunRISe-5 (BCG-experienced) data expected 2026; TAR-210 (erdafitinib release device) for intermediate-risk follows.
  • Halda Therapeutics acquired Q4: clinical-stage prostate cancer asset with platform potential across multiple tumor types.
• Immunology — TREMFYA breaks out.
  • TREMFYA Q4 +65.4% / U.S. +75% / FY >$5B for first time; fastest-growing IL-23 in U.S.; on track to exceed $10B peak.
  • STELARA Q4 −48.6%: HUMIRA Y2 erosion analog tracking; FY26 guide assumes continued erosion off a smaller base.
  • ICOTYDE (icotrokinra, oral IL-23 receptor blocker) anticipated 2026 U.S. approval in psoriasis; head-to-head against STELARA + leading TYK2 inhibitor publishing soon. Positioned for multi-billion peak.
  • Co-antibody therapeutic for biologic-refractory IBD; data 2026.
• Neuroscience — CAPLYTA the new growth driver.
  • SPRAVATO Q4 +67.8% / FY +57%; 200K+ patients treated cumulatively.
  • CAPLYTA Q4 $249M; FY 2025 partial (acquired April 2); November 2025 U.S. approval for adjunctive MDD; new patient start volumes at all-time highs since the approval.

MedTech — Q4 $8.8B (+5.8% op), FY ~$34B (+5.4% op)

• Cardiovascular FY +15% / Q4 +18% Abiomed / +23% Shockwave. Shockwave 13th billion-dollar MedTech platform. EP Q4 +6.5% (lower than Q3’s +9.7% on competitive pressure but VARIPULSE 40K+ cases globally; commit to new catheter every year through end of decade; Dual Energy STSF U.S. submission targeted 2026; OMNYPULSE focal catheter showing positive data; CARTO 3 system deeply entrenched as mapping benchmark with 61% lower AFib readmissions in published study).
• Surgery Q4 +3.7%: ETHICON 4000 stapler launched; OTTAVA FDA de novo submission filed (no predicate-device pathway); ETHIZIA biosurgery submission pending; MONARCH expanding to robotic urology with first-of-its-kind endoluminal + percutaneous renal stones platform in 2026.
• Vision Q4 +6%+: Surgical Vision +10.8% on TECNIS Odyssey + premium IOLs; contact lenses +5.3% on ACUVUE OASYS MAX 1-Day family; TECNIS PureSee U.S. launch 2026.
• Orthopedics Q4 +3.5% — continued sequential improvement (Q3 +2.4%, Q4 +3.5%) on hips/knees/spine traction. Mid-2027 spin completion target.

Key Topics & Management Commentary

Daubert Special Master Recommendation — The Talc Tail Compresses

Wolk addressed the special master report directly:

“The special master correctly decided to exclude the opinions of certain plaintiffs’ experts who propounded junk science. In other parts of the ruling, the court did not uphold its proper gatekeeping duty with respect to the reliability of plaintiffs’ experts’ opinions, and we will appeal. The decision only serves to bolster our overall litigation strategy. We will continue to defend against these meritless claims at trial and through the appeals courts where we have largely prevailed.”
— Joseph Wolk, CFO

The structural read: the special master excluded plaintiff expert opinions on the most damaging junk-science theories (the testimony bridges that have driven the largest historical talc verdicts) and endorsed virtually all of JNJ’s expert opinions. The appealable parts relate to Rule 702 gatekeeping technicalities — meaningful but materially less consequential than the threshold question of whether plaintiff junk science gets in front of juries. Duato added the operational reframe:

“We have been navigating this talc issue already for a decade. And we have been able to continue to deliver excellent results, invest in our business and continue to return value to shareholders. So let’s focus on the real story here…This is a clean story for us, one of the cleanest stories in the entire health care sector.”
— Joaquin Duato, Chairman & CEO

Read-through: the binary risk we held against the Q3 rating is now materially compressed. The talc litigation is not zeroed out, but the most asymmetrically damaging outcome (junk-science theories reaching juries) has been blocked at the special-master level. The remaining appellate path is real but takes years and is more amenable to incremental, manageable reserve marks rather than a multi-billion-dollar shock. We mark Daubert from binary to gradual.

FY 2026 Guidance — The Operational Thesis Quantified

Wolk delivered a comprehensive 2026 framework with unusually granular phasing color:

• Op sales +5.7% to +6.7% (mid 6.2% / $100B); adjusted op (ex-M&A/Divest) midpoint 5.9%; 53rd week ~100bps benefit.
• Reported sales $100.5B mid (6.7% reported); FX neutral assumed.
• Reported adjusted EPS $11.53 mid (vs. $10.79 FY25 = +6.9%); op EPS $11.28-$11.48 mid (+5.5%); $0.15 FX benefit assumed; $0.05 share-count dilution headwind from H2 2025 share-price appreciation.
• Operating margin +50bps minimum despite increased investment, $500M FY26 tariffs, and voluntary U.S. government access agreement.
• Effective tax rate 17.5%-18.5%; net interest expense $300M-400M; net other income $1.0B-$1.2B.
• Phasing: H2 EPS growth higher than H1 (intracellular anniversaries Q2; tariffs largely Q4 2025 vs. linear 2026; STELARA Q1 25 erosion was less pronounced).
• Innovative Medicine drivers: TREMFYA, DARZALEX, CARVYKTI, ERLEADA, SPRAVATO, plus new launches RYBREVANT+LAZCLUZE in lung, CAPLYTA aMDD.
• MedTech drivers: VARIPULSE in EP, ETHICON 4000 in surgery, OASYS MAX family in vision.

Read-through: the framework absorbs material headwinds (GILTI ETR step-up, tariff increase from $200M to $500M, voluntary government access agreement, $0.05 share-count dilution) and still prints $11.28-$11.48 operational EPS — materially above the Q3 preview of $11.39 + $0.05. The operational lift is closer to high-single-digit on a clean basis. This is the framework we needed to see to validate the Q3 acceleration story.

Line of Sight to Double-Digit Growth by End of Decade

Duato delivered the most consequential thesis statement of the call:

“We have line of sight to double-digit growth by the end of the decade, which is notable as Johnson & Johnson is the only health care company that will soon deliver more than $100 billion in annual revenue.”
— Joaquin Duato, Chairman & CEO

The walk: 6 priority areas with multiple differentiated assets each; 28 platforms or products generating $1B+ revenue annually; oncology to $50B by 2030 on multiple myeloma + bladder + lung + prostate franchises; immunology with TREMFYA $10B+ + ICOTYDE multi-billion + co-antibody pipeline; neuroscience with SPRAVATO + CAPLYTA $5B+; cardiovascular at $9B growing 15%+; surgery with OTTAVA + MONARCH; vision compounding mid-to-high single digits. The mathematical proposition is that no other healthcare name has this breadth of $1B+ platforms with growth-mode catalysts — on a $100B+ revenue base. We do not chase the “double digits” into our point estimate (we model 7-8% in 2028-2029) but the framing is directionally credible.

EP Franchise — Modest Q4 Deceleration but Defensive Posture Intact

EP Q4 +6.5% was the only minor blemish on the print (vs. Q3 +9.7%, Q2 +9.8%) reflecting competitive PFA pressure. Schmid’s rebuttal:

“The results speak for themselves, and they’re speaking loud and clear. We’re seeing continued acceleration in the markets that matter most, especially here in the U.S. and in Europe. You will have seen that in the fourth quarter, our growth accelerated to 9.5% [in the U.S.]. We’re on the cusp of once again double-digit growth here in the United States.”
— Tim Schmid, EVP, Worldwide Chairman, MedTech

The U.S. growth-rate (~9.5%) is the more relevant metric than the worldwide print; new catheter every year through end of decade is the multi-year capacity-build commitment. We mark EP-displacement bear case as further-receding.

Capital Allocation: $32B in 2025 R&D + M&A; Tuck-In Discipline

Joaquin’s framing: $32B+ in 2025 R&D and M&A combined (including Intra-Cellular and Halda); billions initiated in U.S. manufacturing (Wilson NC, Holly Springs FUJIFILM site, three more advanced manufacturing facilities). Wolk underscored the discipline:

“We rely on our thoughtful long-term approach to growing through any loss of exclusivity and won’t carelessly deploy capital on speculative transactions out of desperation.”
— Joseph Wolk, CFO (Q3 framing reaffirmed throughout Q4)

The 60+ small-deal model that produced INLEXZO (acquired for a few hundred million in 2019), icotrokinra, and now Halda is the operational template — we treat the BD model as a structural advantage that requires no large-deal binary.

FY 2026 Guidance Detail

Analyst Q&A — Notable Exchanges

• Asad Haider (Goldman Sachs) opened on the bridge to double-digit growth by end of decade; Joaquin walked through all 6 priority areas with the most thesis-relevant operational color of the call. The Innovative Medicine bridge: TREMFYA $10B+, ICOTYDE multi-billion, co-antibody therapy, SPRAVATO + CAPLYTA $5B+, oncology to $50B. The MedTech bridge: cardiovascular continued double-digit, surgery + OTTAVA + MONARCH, vision compounding.
• Larry Biegelsen (Wells Fargo) probed the ACA subsidy expiration impact on MedTech and the FY26 acceleration framework; Schmid pushed back firmly that ACA loss of coverage would not materially impact growth (procedure demand robust; clinical capacity is the binding constraint). EP Q4 deceleration explained as worldwide-print artifact vs. U.S. ~9.5%.
• Chris Schott (JPMorgan) asked about margin progression beyond FY26; Wolk indicated the 50bps FY26 minimum is conservative given orthopedics-spin stranded-cost work + MedTech manufacturing efficiency + reduced STELARA drag off a smaller base. Pointed back to the prior Investor Day commitment that earnings would grow commensurate with sales.
• Joanne Wuensch (Citi) asked about Vision; Schmid framed contact-lens softness in Asia-Pacific as transient with U.S. + global share gains compounding; Surgical Vision +11% Q4 with PureSee U.S. launch ahead.
• Terence Flynn (Morgan Stanley) asked about TECVAYLI vs. CARVYKTI positioning and MRD-negativity FDA guidance implications; Taubert and Reed walked through the multi-line strategy (TEC+DARA for 2L+ CD38-naive/sensitive; TEC monotherapy for refractory; CARVYKTI for cure-intent single-dose); MRD-negativity opens accelerated paths for the trispecific antibody Romantamig.
• Danielle Antalffy (UBS) probed the high-growth-market exposure target post-orthopedics-spin (70%+); Schmid framed it as a floor not a ceiling, with cardiovascular + surgery (OTTAVA) + vision as the levers to push higher. Taubert added Innovative Medicine’s expansion areas: RYBREVANT in head-and-neck/colorectal, IMAAVY in Sjogren’s/SLE, atopic dermatitis platform from late-2024 BD, B-cell BiCAR, milvexian in atrial fibrillation/secondary stroke prevention.
• Vamil Divan (Guggenheim) on INLEXZO launch and the SunRISe-3/-5 timeline; Taubert framed receptivity as “robust” with permanent J-code April 2026; Reed walked through TAR-210 erdafitinib platform extension.
• Shagun Singh (RBC) closed the talc topic with a question on Daubert implications, reserve sufficiency, and resolution path; Wolk and Joaquin reframed: appeal pending; meritless claims continue to be defended; reserves not stress-marked; capital allocation and operational execution unchanged.
• Alex Hammond (Wolfe Research) closed on milvexian: Reed indicated 10x potency advantage vs. competitor in vitro, AfFib + secondary stroke data 2026; Taubert framed safety/bleeding-risk advantage as commercial differentiator vs. XARELTO.

What They’re NOT Saying

• No quantification of GILTI dollar drag in absolute terms. Wolk indicated the ETR moves to 17.5-18.5% but did not size the GILTI $-impact discretely. We assume ~$0.10-$0.15 of EPS drag absorbed in the $11.53 reported guide.
• No specific Daubert appeal timeline. Wolk noted appeal forthcoming; the district-court resolution is multi-quarter. We model ongoing litigation expense at present run-rate but do not embed accretive resolution catalysts.
• No specific orthopedics-spin stranded-cost magnitude or post-spin pro-forma EPS. Wolk indicated mid-2027 separation target with stranded-cost work starting in 2026; pro-forma EPS impact will be detailed closer to completion.
• No specific FY26 segment-level revenue guide. Total firm-level only; we infer Innovative Medicine slightly above firm-wide and MedTech slightly below given orthopedics still in base.
• No specific commentary on MFN/voluntary government agreement’s revenue impact. Reference to “recently announced voluntary agreement with the U.S. government to improve access to medicines and lower costs to U.S. patients” was made; magnitude was not quantified. We treat as low-single-digit-percent revenue impact embedded in guide.
• No specific BD pipeline commentary. Halda announced; future BD discipline emphasized; no signals about specific therapeutic-area gaps to address.

Market Reaction

JNJ printed pre-market on January 21 with the talc Daubert special master report having landed the day prior. The stock move into the close was modest, with morning weakness on the Daubert headline (which the wire interpreted as “mixed” before the prepared remarks reframed the reading) followed by intraday recovery as the FY26 guide and operational framework absorbed by the buyside. Net move was modestly positive but materially below what we believe the print + Daubert reframing warrants.

The undershoot is the buyer’s opportunity. The market priced (1) the Daubert news headline-only on Day 0, missing the substance that the most damaging plaintiff theories were excluded; (2) the FY26 EPS midpoint as broadly in line with the Q3 preview, missing that the $11.53 absorbs $500M in tariff step-up + GILTI + $0.05 share-count dilution + voluntary government agreement; (3) the “double-digit growth by end of decade” framing as aspirational, missing that the bridge math (28 $1B+ platforms; oncology $50B; immunology $20B+ envelope) is now visible. We expect incremental rerating as the FY26 modeling discipline catches up over 2-3 weeks.

Street Perspective

The bull case being made on the Street post-print converges on three planks: (1) the FY26 framework demonstrates JNJ absorbing material headwinds (tariff step-up, GILTI, share dilution, voluntary government access agreement) and still printing high-single-digit reported EPS growth, with FY operating-margin expansion of 50bps minimum; (2) the operational thesis is no longer a single quarter’s read but a confirmed multi-quarter trajectory across Innovative Medicine + MedTech, with TREMFYA + oncology as the structural drivers and cardiovascular/robotics as the optionality; (3) the Daubert special master report excluded the most damaging plaintiff junk-science theories at the threshold, materially compressing the talc tail.

The bear case being articulated on the Street centers on: (1) the EP Q4 deceleration suggests competitive PFA pressure is real and may persist into 2026, with U.S. growth-rate the relevant figure but the global print muddied; (2) the Daubert appellate process takes years, so talc remains an open litigation tail even with the special-master compression; (3) the voluntary U.S. government access agreement’s magnitude is not yet quantified and could expand under MFN; (4) the FY26 +50bps margin guide is narrower than the +300bps FY25 walk, suggesting the easy-margin work is largely done and forward leverage requires top-line; (5) the orthopedics spin completion is mid-2027, so the rerating impact remains 12-18 months ahead.

Our read sides with the bull framing materially. The bear case (1) and (4) are real but appropriately scoped. The bear case (2) has been compressed by the special-master substance. The bear case (5) is an “and-also”, not a thesis-breaker.

Model Implications

• FY26 reported revenue: mark midpoint $100.5B; op +6.2%; we hold to midpoint as the central case.
• FY26 reported adjusted EPS: mark midpoint $11.53; op EPS midpoint $11.38. Bias to the upper half of the range given the Q4 acceleration and our read that the “voluntary U.S. government agreement” impact is conservatively embedded.
• FY27 framework: we underwrite +6-7% top-line on a continuing-ops basis (orthopedics still in base), op EPS $12.20-$12.50 framework. Orthopedics spin completion mid-2027 with 75-100bps incremental top-line and margin uplift to remaining MedTech post-completion (we model FY28 onward).
• STELARA trajectory: we model continued ~40-50% Y/Y declines through Q1 2026 with stabilization to a low base by mid-2026; the Q4 STELARA −48.6% confirms the trough thesis was correct.
• TREMFYA trajectory: we lift our peak estimate from $10B to $11-13B given Q4 +65% pace and the IBD share-capture math. Most of the lift is mid-decade.
• Oncology trajectory: we lift our 2030 oncology revenue point estimate from $40-45B to $43-48B given INLEXZO + Halda + MajesTEC-3/-9 readouts.
• Talc: we mark talc reserves at present run-rate; we do not embed adverse outcome adjustments given the special-master compression. Tail-risk haircut narrowed to 5%-7% multiple-impact scenario from 10%-12% prior.
• Capital deployment: $21B FCF target; tuck-in BD continued; no large M&A required for thesis to work.

Thesis Scorecard

Overall: the thesis is now significantly stronger than at Q3. Six bull pillars confirmed (one entirely new). Four of five bear points resolved, compressed, or absorbed; the only remaining active concern is EP franchise displacement, and that is now a modest issue with management posture intact.

Action: Maintaining Outperform; fair value $190–220 (~17–19x our FY26 framework adjusted operational EPS of $11.28-$11.48 / reported $11.53). The path to higher conviction runs through (a) Daubert appellate progress through 2026 with the foundation already laid by the special-master compression, (b) FY27 framework that maintains the operational acceleration, and (c) ICOTYDE (icotrokinra) launch traction in psoriasis. The path to a downgrade would require (a) Daubert appellate reversal that re-opens junk-science plaintiff theories, (b) FY27 framework that walks back the “double-digit by end of decade” framing, or (c) operational deterioration in cardiovascular or oncology composition. Net: the diversified compounder thesis has been validated through the cliff; we maintain the Outperform call we moved to at Q3.