Amid a volatile macroeconomic environment and heightened recessionary fears, medical stock Johnson and Johnson (JNJ), with a history of stable dividend payments, could be a wise choice for investors to safeguard themselves against market downturns. Let us delve deeper to find more.

Although persistent rate hikes have weighed heavily on the whole economy for quite some time, on the contrary, medical companies have fared well. Despite challenges such as high inflation, supply chain issues, and labor shortages, these companies face an inelastic demand for their products and services.

Healthcare giant JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It has a six-decade-long history of consecutive dividend growth. For the first quarter of 2023, the company declared a dividend of $1.13 per share on its common stock, paid to the shareholders on March 7, 2023.

Its annual dividend of $4.52 yields 2.97% on the current market price, and its four-year average dividend yield is 2.61%. The company’s dividend payouts have increased at 6% and 6.1% CAGRs over the past three and five years, respectively.

Recently, JNJ announced that Kenvue Inc., its wholly owned subsidiary, priced an offering of a series of senior unsecured notes in an aggregate principal amount of $7.75 billion. The offering of the notes is expected to be completed on or about March 22, 2023. 

Kenvue intends to use the proceeds from the offering as partial consideration to JNJ for the Consumer Health Business that JNJ would transfer to Kenvue.

The stock has declined marginally over the past five days to close its last trading session at $152.38. However, Wall Street analysts expect the stock to reach $180 in the upcoming 12 months, indicating a potential upside of 18.1%.

Here are the factors that could influence JNJ’s performance in the near term:

Solid Financials

For the fiscal fourth quarter of 2022, JNJ’s reported sales came in at $23.71 billion.  Its non-GAAP adjusted net earnings rose 9.5% year-over-year to $6.22 billion. The company’s non-GAAP adjusted net earnings per share rose 10.3% from its year-ago value to $2.35. 

Robust Profitability

JNJ’s trailing-12-month gross profit margin of 67.36% is 21% higher than the industry average of 55.67%. Its trailing-12-month ROCE, ROTC, and ROTA of 23.79%, 14.21%, and 9.57% compare to the industry averages of negative 39.67%, 22.07%, and 31.19%, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, JNJ is trading at 14.50x, 22.2% lower than the industry average of 18.64x. Its forward EV/EBIT and EV/EBITDA multiple of 13.37 and 12.24 are 16.6% and 5.7% lower than the 16.02 and 12.98 industry averages, respectively.

Optimistic Analyst Estimates

For the fiscal first quarter ending March 2023, the consensus EPS estimate is $2.53. Its revenue is expected to increase marginally year-over-year to $23.59 billion for the same quarter.

Moreover, for the fiscal year ending December 2023, its EPS and revenue are expected to increase 3.6% and 2.8% year-over-year to $10.51 and $97.63 billion, respectively. Additionally, JNJ topped consensus EPS estimates in each of the trailing four quarters.

POWR Ratings Reflect Promising Prospects

JNJ’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. JNJ is rated an A for Stability, consistent with its five-year beta of 0.53. It has a B grade for Quality, in sync with its robust profitability.

It also had a B grade for Value, justified by its discounted valuation.

JNJ is ranked #7 out of 166 stocks in the Medical – Pharmaceuticals industry. Click here to see additional POWR Ratings for Momentum, Sentiment, and Growth for JNJ.

View all the top stocks in the Medical – Pharmaceuticals industry here.

Bottom Line

JNJ’s innovative pipeline and distinguished portfolio, through strategic partnerships and acquisition, could help the company thrive in the foreseeable future.

Given the current market scenario, this medical stock looks well-positioned to witness significant growth, owing to its industry’s non-cyclical demand. Moreover, given the company’s solid financials and reliable dividend payments, investors could buy the stock to ensure a steady passive income.

How Does Johnson and Johnson (JNJ) Stack Up Against Its Peers?

While JNJ has an overall POWR Rating of A, one might want to consider looking at its industry peers, Novo Nordisk A/S (NVO), Bristol-Myers Squibb Company (BMY), and Novartis AG (NVS), which also have an overall A (Strong Buy) rating.

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JNJ shares were unchanged in premarket trading Monday. Year-to-date, JNJ has declined -13.12%, versus a 1.98% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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