Along with its third-quarter earnings release on Oct. 14, Johnson & Johnson JNJ announced its intention to separate its Orthopaedics franchise within the MedTech segment.
J&J plans to spin off the Orthopaedics franchise as a standalone company. The company is going to be called DePuy Synthes and will be led by Namal Nawana, who is an industry veteran. J&J believes that DePuy Synthes has the potential to become the largest orthopedics company with leading market share positions across major categories and addressing a more than $50 billion market opportunity.
J&J believes the spin-out will put DePuy Synthes in a better position to drive growth and innovation and generate better margins through increased focus. The form of the separation is yet to be revealed, though J&J’s initial goal is a tax-free spin-off. The transaction is expected to be closed in 18-24 months.
The announcement came as a surprise to investors. On the conference call, J&J clarified its rationale behind the decision.
The decision aligns with J&J’s efforts to shift its MedTech portfolio to high-innovation, high-growth markets like cardiovascular and robotic surgery. The separation will allow J&J to focus on its six priority areas of Oncology, Immunology, Neuroscience in the Innovative Medicine segment and Cardiovascular, Surgery and Vision in the MedTech unit. Moreover, the separation will strengthen its MedTech unit and improve margins as the Orthopaedics franchise has been a slow-growth business for J&J. The franchise generated sales of $6.82 billion in the first nine months of 2025, down 0.3% year over year. With its separation, J&J believes its MedTech revenue growth and operating margin would both improve by at least 75 basis points.
J&J has been making disciplined decisions to exit slow-growth businesses and add companies like Abiomed and Shockwave, which operate in high-growth markets. In August 2023, J&J separated its Consumer Health business into a newly listed company called Kenvue KVUE, which now operates as a separate and fully independent company. With the separation of Kenvue, J&J has become a two-sector company focused on the Pharmaceutical and MedTech fields.
The Orthopaedics franchise operates in lower-growth markets, and its exit should allow J&J’s MedTech unit to grow faster.
J&J’s Key Competitors in the Medical Devices Market
J&J’s MedTech unit faces strong competition from several major players in the medical device industry like Medtronic MDT, Abbott, Stryker SYK and Boston Scientific.
While Medtronic has a strong presence in cardiovascular, neuroscience and surgical technologies, Stryker is a global leader in medical technology, specializing in innovative solutions across surgical, neurotechnology, orthopedics and spine care. Boston Scientific markets products for cardiovascular, endoscopy, urology and neuromodulation. Abbott is known for its medical device products across cardiovascular, diagnostics and diabetes care.
JNJ’s Price Performance, Valuation and Estimates
J&J’s shares have outperformed the industry year to date. The stock has risen 32.2% in the year-to-date period compared witha 5.4% increase in the industry.
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From a valuation standpoint, J&J is slightly expensive. Going by the price/earnings ratio, the company’s shares currently trade at 16.97 forward earnings, higher than 15.60 for the industry. The stock is also trading above its five-year mean of 15.64.
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The Zacks Consensus Estimate for 2025 earnings has remained unchanged at $10.86 per share, while that for 2026 has risen from $11.36 to $11.38 over the past 60 days.
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J&J has a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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