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Rating Action:

Moody's affirms J&J's Aaa rating; revises outlook to stable from negative

25 May 2022

New York, May 25, 2022 -- Moody's Investors Service ("Moody's") affirmed the Aaa long-term ratings of Johnson & Johnson ("J&J"), as well as the Prime-1 short-term rating. At the same time, Moody's revised the outlook to stable from negative.

"The outlook change to stable from negative reflects J&J's ongoing progress at resolving litigation uncertainties. Combined with strong operating performance and rising cash levels, J&J is likely to absorb litigation liabilities without material credit profile degradation,"  stated Michael Levesque, Moody's Senior Vice President.

"The affirmation of J&J's Aaa rating considers significant global scale and market presence, excellent diversity, and a strong financial profile  even with the upcoming separation of the consumer products business," continued Levesque.

Social and governance considerations are relevant to the rating action. Progress at resolving opioid and talc litigation reduces social risk exposures related to customer relations and responsible production, contributing to the outlook change to stable from negative. Further, the affirmation of the Aaa rating reflects J&J's strong governance practices including a conservative approach to financial strategy and risk management and a successful track record.

Affirmations:

..Issuer: Johnson & Johnson

….Senior unsecured rating, affirmed Aaa

….Senior unsecured MTN program, affirmed (P)Aaa

.....Senior unsecured Shelf, affirmed (P)Aaa

….Issuer rating, affirmed Aaa

….Commercial paper, affirmed Prime-1

Outlook Actions:

..Issuer: Johnson & Johnson

....Outlook, Changed to Stable from Negative

RATINGS RATIONALE

J&J's Aaa rating reflects the company's large scale and market presence, strong product and geographic diversity, and high margins. J&J's well-performing pharmaceutical unit will generate mid-to-high single digit growth, driving total company revenue growth in the mid-single digits. Blockbusters like Darzalex and Tremfya will contribute to strong growth, as will ongoing launches from the pipeline. Based on J&J's long-held conservative financial policies, Moody's anticipates deleveraging through earnings growth resulting in debt/EBITDA sustained below 1.5x.

Tempering these strengths, J&J's largest product, Stelara, will face biosimilar competition in several years. J&J's planned separation of its consumer products unit will reduce scale, diversity and earnings. Cash outlays related to litigation will constrain free cash flow for the next several years, and resolution of talc litigation is not complete. Other social risks including global pricing pressure, and policy risks related to drug pricing. In addition, there is event risk related to debt-funded acquisitions.

Social and governance considerations are material to J&J's rating. J&J faces highly negative social risk exposures, reflected in the S-4 issuer profile score. However, ongoing resolution of opioid and talc litigation has reduced this exposure and resulted in a revised score, which was previously S-5, signifying very highly negative exposures. The S-4 issuer profile score also considers social risk exposures stemming from demographics and societal trends. While these trends are favorable from a healthcare utilization standpoint, they are also driving healthcare payers to implement measures curbing healthcare spending. In particular, numerous regulatory and legislative proposals in the US market are aimed at drug pricing. J&J's diversity outside of pharmaceuticals will help buffer it from these risks relative to pure-play pharmaceutical companies. J&J's governance issuer profile score is G-1, representing positive governance considerations. This reflects J&J's strong corporate governance practices, a successful track record and a conservative approach to financial policies and risk management. The ESG Credit Impact Score is CIS-3, moderately negative. There is limited credit impact to date, but there is potential for social risk factors like litigation or drug pricing measures to cause credit profile deterioration over time.

The outlook is stable, reflecting Moody's expectations for strong operating performance and additional progress at resolving litigation.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Factors that could lead to a downgrade include increasing exposure to litigation uncertainties, large debt-financed acquisitions or share repurchases, or changes in financial policies such that debt/EBITDA is sustained above 1.5x.

New Brunswick, New Jersey-based Johnson & Johnson ("J&J") is one of the world's largest healthcare companies, with 2021 revenues of approximately $94 billion.

The principal methodology used in these ratings was Pharmaceuticals published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356413. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of  the guarantor entity.  Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Michael Levesque, CFA
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ola Hannoun-Costa
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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