Investing.com -- S&P Global Ratings has confirmed the ’AAA’ long-term issuer credit rating and unsecured debt ratings for pharmaceutical and medical device company, Johnson & Johnson (NYSE: JNJ ). The rating was affirmed and removed from CreditWatch on April 25, 2025, where it had been placed with negative implications since January 14, 2025, following the company’s acquisition of Intra-Cellular Therapies (NASDAQ: ITCI ) Inc. for a total equity value of $14.6 billion. S&P Global Ratings has now assigned a stable outlook.

Johnson & Johnson has been noted for its conservative financial policies, maintaining an adjusted leverage generally under 1.0x, despite an active acquisition strategy. The company’s diverse Innovative Medicine and MedTech businesses continue to generate steady sales growth and strong discretionary cash flows, reducing the necessity for additional mergers and acquisitions.

S&P Global Ratings acknowledged the ongoing talcum powder litigation as a material concern, but it is less likely to result in large cash outflows over the next few years. As a result, this factor is no longer explicitly reflected in the measure of adjusted debt.

In April 2025, Johnson & Johnson completed its acquisition of Intra-Cellular Therapies for $14.6 billion. The company has been acquisitive, conducting significant acquisitions (over $15 billion annually) in two of the past three years. Acquisitions are seen as a crucial component of the company’s growth strategy, and it is expected to actively pursue acquisitions to further diversify its Innovative Medicine and MedTech franchises and drive future earnings.

Despite the active acquisition strategy, Johnson & Johnson is expected to maintain leverage at or below 1.0x on a sustained basis, due to the company’s conservative financial policies and strong projected growth in sales and discretionary cash flows.

The company’s talc litigation threat has lessened in the near to intermediate term, but uncertainty remains. In March 2025, the U.S. bankruptcy court for the Southern District of Texas denied Johnson & Johnson’s plan to settle its talcum powder ovarian cancer litigation for roughly $10 billion. As a result, the company plans to challenge each case individually. No talcum powder-related trials are currently underway. Johnson & Johnson has prevailed in 16 of the 17 trials over the past seven years.

Johnson & Johnson maintains a diverse health care product portfolio, with strong franchises in immunology, oncology, and neuroscience, as well as solid positions in infectious diseases, cardiovascular, and pulmonary hypertension. The company’s recent acquisition of Intra-Cellular has significantly strengthened its neuroscience franchise, adding the schizophrenia and bipolar depression treatment CAPLYTA to its portfolio.

The company faces some headwinds in 2025, including biosimilar competition to its top-selling product, Stelera, and Xarelto losing patent protection. However, the company has several growth drivers across its franchises, and it is expected to generate revenue growth of 2.2% for 2025, down from 4.3% in 2024, before accelerating back to 2.8-3.5% growth in 2026 and 2027.

The stable outlook reflects S&P Global Ratings’ belief that Johnson & Johnson will continue to generate steady growth from its pharmaceutical and med tech franchises and generally maintain adjusted leverage below 1.0x on a sustained basis.

The rating could be lowered if Johnson & Johnson is no longer committed to maintaining average debt leverage below 1.0x and it is projected that adjusted debt leverage will exceed 1.0x on a sustained basis. This could occur if the company pursues acquisitions more aggressively than expected or suffers operational setbacks, such as lower earnings and cash flows due to drug price reform or higher-than-expected legal settlements.

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