Is Shockwave Medical Acquisition the Spark for JNJ Stock Rally?

On April 5, 2024, Johnson & Johnson NYSE:JNJ announced its intention to acquire Shockwave Medical Inc. NASDAQ: SWAV for 13.1 billion dollars. Under the terms of the proposed deal, JNJ will pay $335 per share, or a 4.75% premium to Shockwave’s closing price on April 4, 2024. As of midday trading on April 8, 2024, JNJ stock are stable and SWAV shares increased by approximately 1.8%.

The deal, which the company says will be financed with cash and debt, strengthens JNJ’s position in the rapidly growing market for cardiovascular interventions. The $13.1 billion acquisition represents only about 3.5% of the company’s market capitalization. This allows investors to focus on the upside, of which there appears to be a lot to consider.

One of the rewards for Shockwave Medical is its first-to-market intravascular lithotripsy technology. Lithotripsy technology is commonly used to break up kidney stones, which form from the buildup of calcium. Shockwave’s approach is “a catheter-based treatment for calcified arterial lesions, which can reduce blood flow and cause pain or heart attacks.”

The agreement will strengthen Johson & Johnson’s leadership position in the MedTech sector. Joaquin Duato, CEO of Johnson & Johnson, remarked: “With our focus on innovative medicine and MedTech, Johnson & Johnson has a long history of fighting cardiovascular disease, the leading cause of death globally. The acquisition of Shockwave and its leading IVL technology offers a unique opportunity to accelerate our impact in cardiovascular intervention and generate greater value for patients, shareholders and healthcare systems.”

Will this deal be the jolt JNJ stock needs?

If you watch the JNJ stock price over any period of time, you see a steady upward movement. The company is known for delivering long-term value to shareholders through more than 60 consecutive years of dividend growth and for returning more than 60% of its free cash flow to shareholders over the past five years.

However, over the past five years, the stock has only grown 11.87%. This is more than 10% lower than the S&P 500 average of 14.3% annually over the same period.

And, since August 2023, the stock has been on a steady downward trend. JNJ shares are down 7.88% over the past 12 months and 2.93% in the first three months of 2024. Both numbers are well below the average for pharmaceutical stocks.

During this time, Johnson & Johnson was involved in several lawsuits. And in 2023 the pharmaceutical company broke away Kenvue Inc. NYSE: KVUE. Initially, JNJ shares received a boost from the spinoff, but have since traded in a range.

However, the weak performance may say less about Johnson & Johnson and more about similar companies Novo Nordisk A/S NYSE: NVO AND Eli Lilly & Co. NYSE: LLY, attracting the attention of investors thanks to their GLP-1 weight loss treatments. Other companies are making inroads into the oncology market.

As investors know, the pharmaceutical industry is a “what have you done for me lately” business. The Shockwave acquisition, if approved by Shockwave shareholders, will give investors more value for their shares. Investors should wait for more information when Johnson & Johnson reports earnings on April 16, 2024.

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