JNJ · NYSE · Pharmaceutical Preparations
$258.37 · $627.7B market value · fiscal year to 28 Dec 2025
7 of 10
Buffett tests pass
Margin of safety -16%
Bear
$121.64
Base
$219.47
Bull
$358.18
Price $255.56
Johnson & Johnson is a healthcare company with two segments, Innovative Medicine (prescription drugs) and MedTech (devices used in procedures). Revenue was $94.2B and net income was $26.8B in the latest year, with no loss years across the filings. Return on equity averaged 26% and debt payback is 1.7 yrs, so most quality tests pass. The price of $255.56 is above our base-case value of $219.47, which gives a margin of safety of -16%, so the engine's verdict is a demanding price. The latest operating margin of 36% sits well above its average of 24%, and the filing ties part of 2025 profit to a talc reserve reversal, so the base year needs care.
Predictability: Medium
Johnson & Johnson is a holding company that sells healthcare products through two segments, Innovative Medicine (prescription drugs) and MedTech (devices used in procedures such as heart treatment, joint replacement, surgery and eye care). Revenue was $94.2B in the latest year and free cash flow, the cash left after capital spending, was $19.7B. Patents give the drugs a period of exclusive sales, and the company spends heavily on research to replace products as they lose that protection.
Inside the circle? We rate predictability medium. Cash generation and the long record of profits are steady, but drug sales can fall quickly when patents end, and US drug prices are now set in part by government rules that started in 2026. The engine's value range runs from $121.64 to $358.18 per share, which is wide, and the filing's own net debt figure does not match the engine's net cash figure, so check both before relying on either.
Durability
Narrow
Pricing power
Some
Moat type
Intangibles, Regulation
Patents and trademarks protect most of the profit, and the filing says the company seeks patent protection where possible. A patent gives its owner the sole right to sell a drug for a set period, so this moat ends on a known schedule. The filing says sales can fall fast when that protection ends, and biosimilar copies of Stelara are already reducing sales. The return figures show something valuable is being protected: return on invested capital averages 21% and gross margin averages 68%. The moat is narrow because government rules now set some prices, the latest operating margin of 36% is lifted by a talc reserve release, and the filing reports net debt while the engine shows -$29.8B as net cash, so the balance sheet figures need checking before anyone relies on either.
Threats to the moat
Capital allocation
Questionable
Candour
Neutral
Johnson & Johnson has raised its dividend for sixty-three consecutive years, and the engine shows its share count falling by -1.5% a year. The 2025 balance sheet moved the other way. Total debt rose, and the filing ties that rise to senior unsecured notes issued to fund the Intra-Cellular Therapies acquisition. The filing reports a net debt position, while the engine shows -$29.8B of net cash, so the two sources need reconciling before anyone relies on either. The 2025 earnings also include a large release of a talc reserve, which the filing calls a reversal, so the headline earnings base needs care.
7 pass · 2 mixed · 1 fail · 0 can't tell
At $255.56, the price is above the base-case value of $219.47 (the bear case is $121.64), so there is no margin of safety (-16%). The standard lens asks for 25%.
Why this testNo loss years across 15 years of filings, with operating margin varying by 5.0% around its average.
Discounted owner earnings
Bear
$121.64
Base
$219.47
Bull
$358.18
Price $255.56
| Scenario | Starting owner earnings | Growth (yrs 1–5) | Terminal | Discount | Value / share |
|---|---|---|---|---|---|
| bear | $28.5B | -0.2% | 1.5% | 9.6% | $121.64 |
| base | $28.5B | 3.8% | 2.5% | 8.1% | $219.47 |
| bull | $28.5B | 6.8% | 3.0% | 7.1% | $358.18 |
Sensitivity
| Discount ↓ / Growth → | -0.3% | 1.8% | 3.8% | 5.8% | 7.8% |
|---|---|---|---|---|---|
| 6.1% | $271 | $308 | $350 | $397 |
The price is above the base-case value, so there is no margin of safety (-16%), and your lens asks for a margin the price does not offer. Reported profit in 2025 was lifted by a large reversal of talc reserves, which puts the operating margin of 36% far above its average of 24%. The owner earnings yield of 4.6% is below the 10-year Treasury yield of 5.1%, so the cash you would receive earns less than a government bond. The business also depends on drugs whose patents are ending, and its second-largest product already faces biosimilar copies.
Patent expiry and copies of key drugs
Could break the thesislikelyThe filing says a major portion of a product's revenue can be lost in a very short time once a generic or biosimilar launches. Stelara sales are already falling, and the Darzalex patent families expire in the United States in 2029.
US government drug prices
MateriallikelyMedicare price limits for selected drugs apply from 2026, and the filing names Xarelto, Stelara and Imbruvica on the first list. Janssen's constitutional challenge to the programme is still open, so the final reach of these limits is unknown.
Talc and product liability claims
MaterialpossibleThe company is a defendant in numerous talc lawsuits and does not buy third-party product liability insurance. A large judgment above the accrued reserve would fall on the company's own captive insurer and on cash flow.
Buffett's circle of competence asks whether you can understand the economics and estimate the future. Drug patents run on a known schedule, and the filing says sales can fall substantially after loss of patent exclusivity, so the moat is durable for a period but narrow overall. Pricing power, which Buffett calls the most important test, is weaker here. The filing says the Inflation Reduction Act of 2022 subjects some products to government-established pricing from 2026. Owner earnings, the cash an owner could take out, are $30.7B on the reported basis and $28.5B after normalising, and the gap shows how much the latest year depends on one-off items. The margin of safety test fails. The rates test is mixed: the owner earnings yield of 4.6% sits below the 10-year Treasury yield of 5.1%, so the cash return is below what a government bond pays. The retained earnings test passes at 1.9×, and the share count change of -1.5% a year is the buyback pattern Buffett accepts only when the shares trade below intrinsic value.
Operating margin in the next annual report, and whether it holds without a talc reserve reversal.
The latest margin is lifted by one-off items, and that year sets the earnings base for owner earnings.
Biosimilar entry and generic competition for STELARA, DARZALEX and OPSUMIT.
The filing says the company expects continued launches of biosimilar versions of STELARA globally, and patent expiry is the main threat to the drug franchise.
Net debt and borrowings in the balance sheet notes, reconciled to the engine's net cash figure.
The filing reports net debt while the engine shows net cash of the opposite sign, so the balance sheet needs checking before anyone relies on either.
Talc reserve and litigation accruals in the legal notes.
The filing says the company could be required to pay significant amounts in excess of accruals, which could affect results in any reporting period.
Terms and timing of the planned Orthopaedics separation.
The filing says the company intends to explore multiple paths to effect the planned separation, which would change the group's earnings base and its valuation.
Questions the filings couldn't answer
How this was made
Johnson & Johnson · financial data to 28 Dec 2025 from SEC XBRL filings, narrative from the 10-K filed 11 Feb 2026. Method [email protected], prompts [email protected]. Judgement by anthropic/claude-haiku-5.5. 29 filing quotes verified. Data completeness 100%. Analysed 19 Oct 2026.
General research. It isn't personal advice. Numbers are computed in code from filings; the model writes no figures. It can still be wrong.
Replicly is a research and education tool. It is not financial advice and does not recommend that you buy or sell any investment. Analyses apply Buffett-inspired principles to public data and can be wrong. Warren Buffett and Berkshire Hathaway are not affiliated with and do not endorse Replicly. Capital is at risk.
“Third parties have filed biologics license applications with the U.S. FDA, the European Medicines Agency, and other government authorities seeking approval to market biosimilar versions of STELARA around the globe.”
Business · filing
“The IRA specifies a ceiling price but not a minimum price for selected drugs and does not require CMS to use a specific framework for determining selected drug prices.”
Business · filing
“the Company can lose a major portion of revenues for the referenced product in a very short period of time.”
Risk factors · filing
“Growth was partially offset by ZYTIGA (abiraterone acetate) due to loss of exclusivity and IMBRUVICA (ibrutinib) due to competitive pressures and the impact of Medicare Part D redesign.”
Management's discussion · filing
“The competitive environment requires substantial investments in continuing research.”
Management's discussion · filing
“Only a very few biopharmaceutical research and development programs result in commercially viable products.”
Risk factors · filing
“The Company does not purchase third-party product liability insurance; however, the Company utilizes a wholly owned captive insurance company subject to certain limits.”
Risk factors · filing
“The two patent families both expire in the United States in 2029, and in Europe”
Business · filing
“The Company expects continued launches of biosimilar versions of STELARA globally which will continue to negatively impact the Company’s sales of STELARA.”
Business · filing
“The IRA specifies a ceiling price but not a minimum price for selected drugs and does not require CMS to use a specific framework for determining selected drug prices.”
Business · filing
“the Company can lose a major portion of revenues for the referenced product in a very short period of time”
Risk factors · filing
“The Company’s subsidiaries have made a practice of obtaining patent protection on their products and processes where possible.”
Business · filing
“these payors are putting downward pressure on prices at which products will be reimbursed”
Risk factors · filing
“continued strong performance in the ACUVUE OASYS 1-Day family of products”
Management's discussion · filing
“a significant portion of the previously accrued talc reserve”
Management's discussion · filing
“The Company increased its dividend in 2025 for the 63 rd consecutive year.”
Management's discussion · filing
“The total debt balance at the end of 2025 was $47.9 billion with an average debt balance of $42.3 billion”
Management's discussion · filing
“The fiscal year 2025 includes the reversal of approximately $7.0 billion, a significant portion of the previously accrued talc reserve”
Management's discussion · filing
“Considering recent market conditions, the Company has re-evaluated its operating cash flows and liquidity profile and does not foresee any significant incremental risk.”
Management's discussion · filing
“the Company is uniquely positioned to innovate across the full spectrum of healthcare solutions today”
Management's discussion · filing
The owner-earnings yield is 4.6% against a 10-year Treasury yield of 5.1%.
Why this testReturn on equity averaged 26%, reaching 15% in 9 of the years measured; the weakest year was 2.0%.
Why this testAfter-tax return on invested capital averaged 21% over 10 years and was 25% in the latest year.
Why this testTotal debt of $49.9B would take 1.7 yrs of normalised owner earnings to repay; operating income covers interest 35×. Both tests pass: payback within 4 years and interest cover of 8x or more.
Why this testNormalised owner earnings are $28.5B, and free cash flow has averaged 231% of reported profit.
Why this testCapital spending has averaged 0.6× depreciation; estimated maintenance capex was $3.6B last year.
Why this testEach dollar retained over the period has been matched by 1.9× of market value created ($161.3B retained in total).
Why this testThe diluted share count has changed by -1.5% a year. Shrinking means buybacks are returning value; growing means owners are being diluted.
Why this testRevenue growth (CAGR)
3.0%
Operating margin (avg)
24%
Return on equity (avg)
26%
ROIC (avg)
21%
Cash conversion
231%
Debt payback
1.7 yrs
Share count change (CAGR)
-1.5%
Owner earnings yield
4.6%
| $449 |
| 7.1% | $210 | $239 | $270 | $306 | $346 |
|---|
| 8.1% | $171 | $194 | $219 | $248 | $279 |
|---|
| 9.1% | $144 | $163 | $184 | $207 | $233 |
|---|
| 10.1% | $124 | $140 | $158 | $178 | $199 |
|---|
Green: at least 25% above the price. Amber: above it. Red: below it. n/a means the discount rate is at or below growth, where the model has no finite answer. The corners combine the most extreme assumptions, so treat them as bounds.
Discount rate: 10-year Treasury (5.1%) plus a 3% hurdle. End-of-day prices from free public sources, may be delayed or missing.
2025 earnings flattered by one-off items
MateriallikelyThe filing shows a reversal of a significant portion of the talc reserve in 2025, which lifts the headline margin of 36%. Start your owner earnings base from $28.5B and check the headline figures separately.
Debt rose and the net debt figures do not match
MateriallikelyDebt rose after new notes funded the Intra-Cellular purchase. The engine shows -$29.8B of net cash, but the filing reports a net debt position and a different total debt figure from $49.9B, so the balance sheet needs reconciling before you rely on either.
Lower research spending may thin the pipeline
MaterialpossibleResearch spending fell as a share of sales, and the filing ties part of that to investment prioritisation. Future sales depend on new launches replacing products that lose exclusivity, and the filing gives no direct measure of how much of that replacement is already in sight.
What would change the view
“The two patent families both expire in the United States in 2029”
Business · filing
“The Company expects continued launches of biosimilar versions of STELARA globally which will continue to negatively impact the Company’s sales of STELARA.”
Business · filing
“the Company can lose a major portion of revenues for the referenced product in a very short period of time.”
Risk factors · filing
“The selected products are subject to a government-established price for the Medicare population beginning in 2026.”
Business · filing
“The Company does not purchase third-party product liability insurance; however, the Company utilizes a wholly owned captive insurance company subject to certain limits.”
Risk factors · filing
“The fiscal year 2025 includes the reversal of approximately $7.0 billion, a significant portion of the previously accrued talc reserve”
Management's discussion · filing
“The higher debt balance was due to the senior unsecured notes issued by the Company in the fiscal first quarter of 2025.”
Management's discussion · filing
“As of December 28, 2025, the Company's notes payable and long-term debt was in excess of cash, cash equivalents and marketable securities.”
Management's discussion · filing
“Leverage resulting from investment prioritization in the Innovative Medicine business”
Management's discussion · filing