Johnson & Johnson Just Raised Its Sales Outlook Again. Here's Why the Dividend King Is Still a Buy.

Although Johnson & Johnson's (NYSE: JNJ) third-quarter revenue and earnings both topped analyst estimates and the company even raised its full-year sales guidance, investors panicked over disappointing sales of medical devices. All told, the stock fell nearly 6% on Tuesday following that morning's earnings release, adding to weakness that's been in place since early last month.

Wise investors, however, will view this pullback from J&J shares as an opportunity rather than an omen. Although the company clearly has a couple of matters to iron out, the proverbial glass is more than half full.

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The quarter's big stumbling block

Drugmaker Johnson & Johnson turned $25.9 billion worth of revenue into an adjusted per-share profit of $2.59 during the three-month stretch ending in September, up 6% and down 7.5% (respectively) year over year, but topping most analysts' widely varied expectations for both measures. The company also upped its sales and earnings guidance for the entirety of fiscal 2026. Its previously projected operational sales growth of between 6.2% and 6.8% has now been raised to a new range of 6.4% to 6.8%, while July's adjusted earnings guidance growth of between 1.6% and 2.4% has been revised to a new range of 2.4% to 3.3%.

The stumbling block? Sales of medical technology equipment. This arm's revenue increased only 2.5% to $8.6 billion, falling short of analysts' consensus estimates of just over $8.7 billion. Investors just flinched.

Granted, CFO Joe Wolk may have done more harm than good by conceding during Tuesday's third-quarter earnings conference call that "MedTech performance needs to improve," then describing this division's quarterly results as "disappointing."

Even so, investors appeared prepared to dole out a bearish response regardless of what management said about the company's quarterly results.

Now, take a step back and look at the bigger picture.

The bullish thesis lost in all the noise

As was noted, the market's immediate response to J&J's third-quarter report makes enough sense on the surface. Its medical equipment arm's results are a legitimate concern, and the company made it even more of a red flag by floating the idea of a spinoff of its orthopedics equipment business, DePuy Synthes, sometime in 2027, a tacit admission that management doesn't believe this business is worth trying to rejuvenate.

Just bear in mind that the entirety of Johnson & Johnson's medical tech division still only accounts for about one-third of the company's total sales, and less than 20% of its adjusted net income. Moreover, J&J's orthopedics business alone accounts for only about one-fourth of its medtech business.

In other words, its DePuy Synthes brand isn't quite the liability it's being seen as. Johnson & Johnson will be fine with or without it, as is the case with most pieces of its medical technology portfolio.

Perhaps the key bullish argument obscured by the noisy aftermath of the pharmaceutical giant's third-quarter earnings release, however, is that the company's still on pace to become the cancer treatment juggernaut it's been planning to become since 2024. Still doing work that began that same year, J&J maintains that it will be doing at least $50 billion worth of oncology drug business by 2030. That would not only make treating cancer the company's single-biggest business, but also make Johnson & Johnson one of the pharmaceutical industry's biggest sellers of cancer drugs.

The irony? Several of the key oncology drugs the pharma outfit expects to lead this charge are already showing clear signs of their required growth. Led by the 15.4% increase in sales of Darzalex and 62% and 77% year-over-year growth in sales of Rybrevant and Tecvayli (respectively), Johnson & Johnson's global oncology business grew more than 16% to $7.6 billion during Q3 alone. The company simply needs to continue winning approvals for its newer cancer drugs.

And it will. For instance, last quarter, the U.S. Food and Drug Administration granted a priority review of Rybrevant Faspro as a treatment for certain types of head and neck cancer, underscoring the need for more effective treatment options.

Just know what you're buying into

This doesn't necessarily make J&J shares easy to own in the meantime. Confidence in the company's future is shaky at best, creating investor indecision that in turn spurs unpredictable volatility for the stock.

There's one arguably overlooked detail to consider here, however, that makes this ticker much easier to stick with in the interim. That's its dividend. Although its forward-looking yield of 2% isn't exactly thrilling, it's based on an annualized dividend payment with a 64-year growth streak that isn't apt to end anytime soon. Indeed, Johnson & Johnson can comfortably continue paying it without undermining its growth or balance sheet. The per-share profit of $11.10 that analysts are anticipating for this year -- en route to $11.79 next year -- is more than enough to cover what will only be $5.32 worth of dividend payments declared and paid in 2026.

This might help: Despite a couple of concerning quarterly reports and the stock's subsequent weakness this year, analysts aren't deterred. Most of them still consider J&J a strong buy, with a consensus price target of $282.48, which is well above the ticker's current price. If nothing else, it's a healthy starting point.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.