Why Johnson & Johnson Stock Dropped Today

Johnson & Johnson (NYSE:JNJ) stock tumbled 6.8% through 12:30 p.m. ET Tuesday despite delivering an earnings beat this morning and raising guidance for the rest of 2026.

Heading into earnings day, analysts expected Johnson & Johnson to earn $2.53 in "adjusted" earnings on $25.4 billion in sales for Q3. In fact, J&J says it earned $2.59 per share, adjusted, and beat slightly on sales as well.

Johnson & Johnson Q3 earnings

Johnson & Johnson grew its sales 5.9% in Q3, but despite beating on earnings, its adjusted profit was down 7.5% -- and its GAAP profit was down much, much more. Blaming a "one-time special charge for the proposed talc litigation resolution, the acquisition of Firefly Bio, Inc., and the strategic collaboration with Sail Biomedicines" for the news, J&J admitted that its Q3 earnings calculated under generally accepted accounting principles (GAAP) came to just $0.09 per share.

That's a 96% year-over-year decline.

What's next for Johnson & Johnson

So you can see why investors were just a wee bit upset with the news. But should they be?

Yes, earnings were down dramatically, but on the plus side, free cash flow increased more than 6% to $15.1 billion. What's more, the declines were expected, and ended up being less bad than feared. On top of all that, J&J raised its guidance for the rest of this year. Management now anticipates that 2026 sales will grow 7.4% to $101.2 billion, and its adjusted earnings could be $11.10 per share.

My problem with all this, though, is that... it's not enough.

Valued even on adjusted earnings, Johnson & Johnson stock costs more than 22x earnings. Valued on free cash flow, the multiple is closer to 29x. I just don't see how 7%-ish growth is good enough to support that.

To me, Johnson & Johnson stock looks like a sell.

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