Investors always look for stocks that are long-term wealth creators. And Johnson & Johnson (JNJ) is a perfect fit in that regard. In addition to capital appreciation, the company shared its profits periodically with investors as dividends for 59 years.

JNJ is engaged in the research and development, manufacturing, and sale of a range of products in the healthcare field. It operates through the Consumer, Pharmaceutical, and Medical Devices segments.

Investing in stocks like JNJ could help achieve a wealthy retirement. JNJ has returned more than 200% over the past decade. Companies like JNJ have been able to consistently weather any economic condition with ease due to their strong fundamentals, almost inelastic demand for their products, and brand recognition.

JNJ is expected to create more value for its shareholders as it hives off its consumer health segment, which includes various self-care, skin health/beauty, and essential products, into a separate company. The consumer health segment has reported marginal growth compared to its MedTech and Pharmaceutical Products segments.

For fiscal 2022, the company expects its operational sales to come between $97.30 billion to $98.30 billion, while its adjusted operational EPS is expected to come between $10.60 and $10.80. JNJ CEO Joaquin Duato said, “Looking ahead, I remain confident in the future of Johnson & Johnson as we continue advancing our portfolio and innovative pipeline.”

JNJ’s revenue has grown at a CAGR of 5.1% over the past three years. The company’s EBITDA grew at a CAGR of 5.2% over the past three years.

With the kind of cash the company generates, JNJ can easily opt for organic and inorganic expansion, which will spearhead the company’s growth in the long term.

JNJ had announced a 6.6% increase in its quarterly dividend of $1.13 per share, which was paid on June 7, 2022. The stock’s four-year average dividend yield is 2.60%, and its forward annual dividend of $4.52 translates to a 2.58% yield. Its dividend has grown at a 5.7% CAGR over the past three years. 

The stock has gained 2.5% in price year-to-date and 3.6% over the past year to close the last trading session at $175.44.

Here’s what could influence the performance of JNJ in the upcoming months:

Robust Financials

JNJ’s reported sales increased 5% year-over-year to $23.42 billion for the first quarter ended March 31, 2022. The company’s adjusted net earnings increased 3% year-over-year to $7.12 billion. Also, its adjusted EPS came in at $2.67, representing an increase of 3.1% year-over-year. In addition, its gross profit increased 3.7% year-over-year to $15.82 billion.

Favorable Analyst Estimates

Analysts expect JNJ’s EPS for fiscal 2022 and 2023 to increase 4.4% and 6.2% year-over-year to $10.23 and $10.87, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 2.6% and 3.8% year-over-year to $96.27 billion and $99.97 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters.

Mixed Valuation

In terms of forward non-GAAP P/E, JNJ’s 17.15x is 9.4% lower than the 18.94x industry average. Likewise, its 15.08x forward EV/EBIT is 7.2% lower than the 16.26x industry average.

However, its 5.13x forward non-GAAP PEG is 193% higher than the 1.75x industry average. Also, its 4.80x forward P/S is 5.3% higher than the 4.55x industry average.

High Profitability

In terms of trailing-12-month gross profit margin, JNJ’s 68.06% is 23.3% higher than the 55.18% industry average. Likewise, its 0.54% trailing-12-month asset turnover ratio is 54.4% higher than the industry average of 0.35%. Furthermore, the stock’s trailing-12-month ROCE and ROA came in at 28.22% and 11.12%, respectively, compared to the negative industry averages.

POWR Ratings Show Promise

JNJ has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JNJ has a C grade for Value, consistent with its mixed valuation.

It has a B grade for Quality, in sync with its 26.50% trailing-12-month EBIT margin, which is significantly higher than the 1.27% industry average. It has a 0.63 beta, justifying its F grade for Stability.

JNJ is ranked #8 out of 169 stocks in the Medical – Pharmaceuticals industry. Click here to access JNJ’s Growth, Momentum, and Sentiment ratings.

Bottom Line

JNJ has not only delivered returns through capital appreciation but has also shared its profits as dividends. The company has been consistently growing its revenues and earnings, and analysts expect it to keep growing its top line and bottom line over the next two years.

Moreover, with JNJ spinning off its consumer health segment into a separate entity, the stock is expected to become even more attractive. Given its robust financials, higher-than-industry profitability, and stable dividend payouts, it could be a solid investment amid the current uncertain market conditions.

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

JNJ has an overall POWR Rating of A, equating to a Strong Buy rating. You might want to consider investing in the following Medical – Pharmaceuticals stocks with an A (Strong Buy) and B (Buy) rating: Merck & Co., Inc. (MRK), Novartis AG (NVS), and Zoetis Inc. (ZTS).

JNJ shares were trading at $174.80 per share on Thursday afternoon, down $0.64 (-0.36%). Year-to-date, JNJ has gained 3.50%, versus a -20.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

More Resources for the Stocks in this Article