Johnson & Johnson's Valuation Took a Round Trip Its Earnings Never Made

Introduction

In October 2024, you could buy Johnson & Johnson for about 11 times trailing earnings — cheaper than the S&P 500, cheaper than the average utility, cheaper than a company with 55 consecutive years of dividend increases has any business trading for. By August 2026, that multiple had nearly tripled to the high-20s and low-30s, and the stock had just set a fresh all-time high near $270 (Investing.com, Aug 2026). Same company, same core business, wildly different price tags on its earnings.

That's not a story about Johnson & Johnson suddenly becoming a better business. It's a story about what happens to a stock's multiple when a decade-long legal liability finally starts resolving itself — and about how much of a "cheap" or "expensive" reading on any GAAP-earnings-based stock can hinge on litigation accounting rather than what the company actually sold that quarter.

Key Takeaways

• JNJ's trailing P/E averaged 10.36 from April–October 2024, climbed to an average of 20.16 by early 2026, and averaged 28.93 in the most recent window through August 11, 2026 — the most expensive of the three by a wide margin.
• The swings in trailing GAAP EPS behind those multiples were driven largely by talc-litigation accounting: a roughly $5.1 billion charge taken across 2024, a $7 billion reserve reversal in 2025 after a bankruptcy dismissal, and fresh charges in 2026 as litigation resumed (J&J investor relations, Apr 14, 2026).
• J&J agreed to pay an estimated $5.5 billion to resolve roughly 76,000 talc claims, announced July 28, 2026 — the same week the stock hit its 52-week high (Fortune, Jul 29, 2026; CNBC, Jul 28, 2026).
• Stelara, once a nearly $11 billion drug, saw sales fall 41.3% to $6.08 billion in 2025 as biosimilars entered the market — but Darzalex (+18.9%) and Tremfya (+72.5%) have more than offset the loss so far, and J&J raised 2026 guidance twice this year (company Q2 2026 release, 2026).
• J&J's trailing PEG ratio went from roughly 0.3 in 2024 to "n/a" in early 2025 to 1.68 by August 2026 — a reminder that PEG built on trailing GAAP earnings can become meaningless whenever litigation charges push the growth denominator negative.

The Three Windows, Side by Side

Pull JNJ's trailing GAAP price-to-earnings ratio across three comparable stretches and the pattern is stark:

• April 10, 2024 – October 9, 2024: Price rose from $144.45 to $164.10 (+13.6%). Trailing EPS climbed from $13.81 to $15.15. Trailing P/E stayed under 11 the entire window (9.52–11.05, averaging 10.36), and the trailing PEG sat near 0.3 — a level that, on paper, screamed "undervalued."
• April 9, 2025 – February 11, 2026: Price surged from $153.62 to $243.33 (+58.4%). Trailing EPS jumped in visible steps — $8.99 in mid-May 2025, $10.36 by mid-November, $11.04 by period's end — the kind of jagged, non-linear path that signals one-time items rather than steadily compounding operating income. Trailing P/E roughly doubled to an average of 20.16, and PEG went from not computable (the trailing growth rate was briefly negative) to 1.23.
• May 27, 2026 – August 11, 2026: Price rose from $222.89 to $259.80 (+16.6%), while trailing EPS sat flat at $8.65 the entire window. Trailing P/E ran from 25.78 up to 30.91, averaging 28.93 — comfortably the richest of the three periods — with PEG climbing from 1.44 to 1.68.

That third column is the one worth sitting with. Trailing EPS didn't move at all during the most recent window — it was flat at $8.65 for eleven straight weeks — while the price still climbed 16.6%. Whatever is driving JNJ higher right now, it isn't a jump in trailing reported earnings. It's a market willing to pay progressively more for the same dollar of trailing profit, three times in a row.

2024: Cheap Because of a Bankruptcy That Wouldn't Die

The 2024 window's rock-bottom multiple wasn't a market mistake. It reflected a genuinely unresolved liability. J&J spent years trying to offload its talc litigation through a legal maneuver known as the "Texas two-step" — spinning off the liability into a subsidiary and pushing that subsidiary into bankruptcy to force a global settlement through the bankruptcy court rather than tens of thousands of individual jury trials. The U.S. Supreme Court's June 27, 2024 ruling in Harrington v. Purdue Pharma, which held that bankruptcy courts cannot impose nonconsensual releases on non-debtor third parties, undercut the legal theory J&J was relying on to force a global talc settlement through Chapter 11 (BusinessWire, Jun 27, 2024). That September, J&J's subsidiary Red River Talc filed for Chapter 11 in Texas for a third attempt at the same strategy — and Judge Christopher Lopez went on to reject it on March 31, 2025, ruling that the company's claimant vote count relied on improper means (Yahoo Finance, Mar 31, 2025).

Against that backdrop, an 11x trailing multiple made sense. The market wasn't pricing a healthy pharmaceutical and medtech franchise at a discount out of confusion — it was pricing genuine uncertainty about how many more billions in verdicts and settlements were coming, and whether the company could ever contain the liability through the courts. J&J went on to record roughly $5.1 billion in talc-related accounting charges over the course of 2024, which is part of why the trailing EPS figures visible in the April–October 2024 window (before that charge fully worked through the trailing twelve-month calculation) look healthier than what showed up a few months later.

2025: The Reversal That Inflated the Multiple's Denominator, Then Took It Away Again

The second window's eye-catching EPS path — $8.99, then $10.36, then $11.04 — traces almost exactly to one event: the March 2025 bankruptcy rejection. Once the Chapter 11 plan collapsed, J&J reversed roughly $7 billion of the talc reserve it had built up, because the accounting basis for holding that reserve (the anticipated bankruptcy settlement) no longer existed. That reversal flowed straight through GAAP net income, and full-year 2025 diluted EPS ended up at $11.03, up more than 90% year-over-year — a number that had essentially nothing to do with how many syringes, cancer drugs, or hip implants J&J sold that year.

That's also why the trailing PEG ratio goes from "n/a" to 1.23 within this same window in the source data: PEG divides P/E by a trailing growth rate, and when talc charges pushed the growth base briefly negative, the ratio simply stops being computable. A metric built to signal "cheap relative to growth" breaks down entirely the moment litigation accounting, not operating performance, is doing the driving.

Underneath the litigation noise, the actual operating story in 2025 was more mixed than the EPS headline suggested. Stelara — once J&J's second-largest drug, generating close to $11 billion in 2023 — lost U.S. patent exclusivity as the first biosimilar launched on January 1, 2025. By year-end, Stelara sales had fallen 41.3% to $6.08 billion, dragging total company revenue growth down by roughly 620 basis points (Talk Bio). That's the kind of patent-cliff arithmetic every large-cap pharmaceutical company eventually faces, and it was happening in the background while the market's attention was on litigation reserves.

2026: The Cleanest Earnings JNJ Has Reported in Years — Priced at Its Richest Multiple Yet

Here's the twist that makes the current window the most interesting of the three. The $8.65 trailing EPS sitting flat through mid-August 2026 isn't inflated by a reserve reversal, and it isn't yet fully weighed down by a fresh mega-charge either — it's closer to what J&J's underlying quarterly earnings actually look like without a one-time litigation event doing the work. Q1 2026 GAAP EPS came in at $2.14, including roughly $0.3 billion in talc-related charges, a sharp comedown from Q1 2025's reversal-boosted results but a more "normal" number on its own terms. Q2 2026 GAAP EPS was $2.27, roughly flat with $2.29 a year earlier once you set aside the reversal noise in the comparison base (JNJ Q2 2026 10-Q).

And yet this is the window where the market is paying the most for every dollar of that trailing earnings — nearly 29x on average, and as high as 30.91x within the period. Three things are converging to justify that premium, at least in the market's eyes:

The legal overhang is finally being priced out rather than in. On July 28, 2026, J&J announced an estimated $5.5 billion settlement to resolve roughly 76,000 remaining talc claims, contingent on at least 95% of claimants participating — with payments of up to $3 billion due in 2027 and nothing before that (CNBC, Jul 28, 2026). The stock touched its 52-week high the very same week. By quarter-end, J&J's total talc reserve had settled at roughly $3.7 billion in present value, covering executed settlements and remaining litigation costs — a number that, whatever else it is, finally looks like a knowable liability rather than an open-ended one (JNJ Q2 2026 10-Q).

The growth engines that survived Stelara's patent cliff are now large enough to move the whole company. In Q2 2026, Darzalex sales rose 18.9% to $4.21 billion and Tremfya rose 72.5% to $2.05 billion, beating analyst estimates by roughly $200 million on Tremfya alone (Yahoo Finance/Zacks). MedTech operational sales grew 4.6%, led by electrophysiology, Abiomed, and Shockwave in cardiovascular and trauma products in orthopaedics. J&J posted $25.3 billion in quarterly sales, up 6.6% year-over-year, and raised full-year 2026 guidance twice — most recently to $100.8–$101.4 billion in reported sales and adjusted EPS of $11.60–$11.75, up from an earlier $11.45–$11.65 range (company Q2 2026 release).

Washington handed J&J a reason to look more, not less, durable. As part of the Trump administration's push for Most Favored Nation drug pricing — tying U.S. list prices to what peer developed countries pay — J&J struck a voluntary agreement to align its U.S. prescription prices in exchange for a limited tariff exemption on imported pharmaceutical ingredients, contingent on expanding domestic manufacturing (The Hill; AJMC). Branded drugs from companies without such a deal face tariffs of up to 100% under the administration's April 2026 framework. That's a real headwind removed for J&J specifically, even as it caps some future U.S. pricing upside — a trade-off the market appears willing to accept for now.

Layer on 55 consecutive years of dividend increases and a still-respectable ~2% yield, and it's easy to see why a defensive, de-risking, guidance-raising blue chip earns a premium multiple in almost any market environment. The open question is whether nearly 29x trailing earnings — and a forward multiple closer to 22x on adjusted guidance — has moved past "de-risked compounder" pricing into "priced for a rerun of Darzalex-and-Tremfya-sized growth indefinitely" territory, especially with Stelara's decline not yet finished and MFN pricing still an evolving, largely opaque policy.

The Part a Trailing Multiple Can't Tell You

The 2023 Kenvue spinoff is worth remembering here too, because it's a reminder that even the "clean" parts of JNJ's recent GAAP history have their own one-time fingerprints. Completing the Kenvue exchange offer in August 2023 generated an approximate $20 billion accounting gain and $13.2 billion in cash proceeds, plus a partial-year $0.28 boost to adjusted EPS that year (J&J investor relations). That gain sits inside the multi-year earnings base that periodically resurfaces in trailing three-year growth comparisons — including, indirectly, the unusually low PEG that made JNJ look so statistically cheap back in 2024.

None of that makes the 2024 valuation "wrong" or the 2026 valuation "wrong." It means a trailing P/E and a trailing PEG on a company with this much one-time-item traffic — a $20 billion divestiture gain, a $5.1 billion charge, a $7 billion reversal, a fresh $5.5 billion settlement — are measuring something closer to accounting history than forward earnings power in any given quarter. That's precisely why SPXScore's methodology is built around forward earnings estimates rather than trailing GAAP results: the number that should set today's price is the one analysts expect the company to report next, not the one that got revised, reversed, and re-charged over the last three years.

If you want to see how JNJ's re-rating compares with the rest of the healthcare sector and the broader index, our historical trend view tracks trailing and forward P/E and PEG over time, and the S&P 500 coverage applies the same framework across the full index — including the free S&P 50 subset for a faster read.

Conclusion

Johnson & Johnson's earnings power in mid-2026 — a $100 billion revenue run rate, Darzalex and Tremfya growing fast enough to outrun a collapsing Stelara franchise, a mostly-resolved talc liability — is a genuinely stronger, more legible business than the one trading at 11x earnings in October 2024. But "genuinely stronger" and "worth nearly three times the multiple" aren't the same claim, and the gap between them is where most of this stock's story over the past two years actually lives. The trailing numbers swung from cheap to expensive largely on the back of a liability moving from open-ended to contained — a real and important shift, but one that's now essentially priced in. What happens to JNJ's multiple from here likely rides less on the next legal headline and more on whether Tremfya, Darzalex, and MedTech can keep outrunning Stelara's decline at a pace that justifies a premium the stock hasn't traded at in years.

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This article discusses Johnson & Johnson's historical stock performance and macroeconomic conditions as of August 16, 2026, for informational purposes only. It is not investment advice or a recommendation to buy or sell any security. Financial data, litigation reserves, and guidance figures are subject to revision by the company.