Leading healthcare company Johnson & Johnson (JNJ) performs well amid uncertain economic conditions, as evidenced by its core business segments’ continued strength and stability in 2022. The company’s robust financials, solid growth prospects, and reliable dividends make it a stable and dependable investment option that investors can hold for the long run. Let’s discuss this in detail.

Over the past years, the healthcare conglomerate JNJ demonstrated its ability to evolve continuously and adapt by spearheading Research and Development (R&D) efforts for COVID-19 vaccines and other medical treatments.

As a massive consumer goods titan, JNJ’s diversified portfolio includes a significant portion of consumer staples, which are expected to remain in high demand regardless of economic conditions. The company’s century-old legacy of expertise in both healthcare and consumer goods positions it well for long-term growth.

JNJ has raised its dividends for 60 consecutive years. The company pays a $4.52 per share dividend annually, which translates to a 2.85% yield on the current price level.  Its dividend payments have grown at a 6.1% CAGR over the past five years, and its four-year average dividend yield is 2.61%.

For the fiscal year that ended December 31, 2022, the company’s reported sales increased 1.3% year-over-year to $94.94 billion. Also, its adjusted net earnings and EPS grew 3.2% and 3.6% from the year-ago values to $27.04 billion and $10.15, respectively.

“Our full year 2022 results reflect the continued strength and stability of our three business segments, despite macroeconomic challenges,” said Joaquin Duato, JNJ’s CEO, and Chairman. “As we look ahead to 2023, Johnson & Johnson is well-positioned to drive near-term growth, while also investing strategically to deliver long-term value.”

Shares of JNJ have gained 3.4% over the past five days to close the last trading session at $158.49.

Let's now delve deeper into the factors that render JNJ a compelling prospect for investment.

Positive Recent Developments

On April 3, 2023, JNJ’s Janssen Pharmaceutical Companies announced a new tablet strength of ERLEADA®. The 240mg tablet is the only daily Androgen Receptor Inhibitor (ARI) approved for treating non-metastatic and metastatic castration-resistant/sensitive prostate cancer. The new launch should improve patient care, aiding the company’s growth and profitability.

Moreover, on December 22, 2022, JNJ completed the acquisition of Abiomed, Inc. (ABMD), marking a significant milestone in the company’s efforts to accelerate growth in its MedTech division and bring innovative medical technologies to a broader global audience.

The acquisition of ABMD expands JNJ’s presence in the rapidly growing cardiovascular markets by including heart recovery solutions alongside the company’s already leading Biosense Webster electrophysiology business.

Robust Financials

For the fourth quarter that ended December 31, 2022, JNJ’s U.S. sales increased 2.9% year-over-year to $12.52 billion. Its adjusted earnings before the provision for taxes on income rose 17% from the year-ago value to $7.42 billion. Additionally, the company’s adjusted net earnings and EPS grew 9.5% and 10.3% year-over-year to $6.22 billion and $2.35, respectively.

Favorable Analyst Estimates

Street expects JNJ’s revenue to increase 2.9% year-over-year to $97.68 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 3.6% from the prior year to $10.52. Moreover, it topped the consensus EPS estimates in all four trailing quarters, which is excellent.

In addition, the company’s revenue and EPS for the fiscal year 2024 are expected to increase by 2.7% and 4% year-over-year to $100.32 billion and $10.94, respectively.

Solid Growth Record

JNJ’s revenue has grown at a CAGR of 5% over the last three years. Also, over the same period, its normalized net income and EPS have increased at CAGRs of 17.1% and 6.1%, respectively, while its EBIT has grown at 6.6% CAGR.

Discounted Valuation

In terms of forward non-GAAP P/E, JNJ is trading at 15.07x, 23.8% lower than the 19.78x industry average. Its forward EV/EBITDA multiple of 12.69 is 2.6% lower than the industry average of 13.03. Additionally, the stock’s forward EV/EBIT multiple of 13.88 is 15.4% lower than the industry average of 16.39.

High Profitability

JNJ’s trailing-12-month gross profit margin of 67.36% is 20.7% higher than the 55.8% industry average. Its trailing-12-month EBITDA margin of 34.46% is significantly higher than the 2.56% industry average. Also, JNJ’s trailing-12-month levered FCF margin of 20.21% compares to the industry average of negative 3.37%.

Furthermore, the stock’s trailing-12-month cash from operations of $21.19 billion compares to the industry average of $23.93 million, and its trailing-12-month asset turnover ratio of 0.51x is 47.1% higher than the industry average of 0.35x.

POWR Ratings Show Promise

JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JNJ has an A grade for Stability, consistent with its 24-month beta of 0.31. The stock’s higher-than-industry profitability justifies its Quality grade of B.

In addition, the stock also has a B grade for Value, in sync with its lower-than-industry valuation. JNJ is ranked #7 in the 165-stock Medical - Pharmaceuticals industry. Click here to access JNJ’s Growth, Momentum, and Sentiment ratings.

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

Bottom Line

Healthcare giant JNJ is well-positioned to deliver better healthcare solutions and services to patients by introducing new, transformative medical treatments and acquiring new businesses to expand its portfolio. These initiatives should boost its financial performance, enhance its competitive position, and bring greater innovation and efficiency to the company.

JNJ’s strong financials, high profitability, solid growth outlook, low valuation, and attractive dividends might make it an ideal long-term investment.

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

JNJ has an overall POWR Rating of A, equating to a Strong Buy. One can also explore other Medical - Pharmaceuticals stocks that have the same overall rating, such as Novo Nordisk A/S  (NVO), Novartis AG (NVS), and Bristol-Myers Squibb Co. (BMY).

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JNJ shares were trading at $165.18 per share on Wednesday afternoon, up $6.69 (+4.22%). Year-to-date, JNJ has declined -5.82%, versus a 6.84% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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