I am neutral on Johnson & Johnson (JNJ), as its stock price looks neither particularly attractive nor expensive at the moment.

Johnson and Johnson is one of the world's largest healthcare companies, and is commonly referred to as a global healthcare giant because of its consumer health products, medical devices, and pharmaceutical products.

Founded back in 1886 by three brothers, Robert, James, and Edward Johnson, the company has over 135,000 employees across the world today. (See Johnson & Johnson stock charts on TipRanks)

Thanks to its broad product diversification, strong and proven research and development team, and robust free cash flow generation working in tandem with its fortress balance sheet, Johnson and Johnson is positioned as a leader in its sector.

It owns significant intellectual property rights that give it strong brands, loyal customers, and the ability to drive excess returns on invested capital across cycles. It is also able to leverage its immense scale to improve efficiencies, and invest vast sums of resources into its R&D pipeline without eating significantly into its profit margins. This should enable it to sustain its competitive advantage for years to come.

Johnson and Johnson recently reported Q2 results. Its overall financial results showed an impressive year-over-year sales growth of 27.7% to $23.3 billion in the second quarter of 2021, with an operational growth of 23% and an adjusted operational growth of 23.8%. EPS increased 72.8% to $2.35, while the adjusted EPS of $2.48 increased 48.5%.

Johnson and Johnson’s chairman and CEO stated that the company’s strong headline growth was driven by the impressive sales and earnings growth across its Medical Device, Consumer Health and Pharmaceutical businesses.

Consumer Health worldwide operational sales, excluding the net impact of acquisitions and divestitures, increased 10%. Pharmaceutical worldwide operational sales, excluding the net impact of acquisitions and divestitures, grew 14.1%, driven by STELARA (ustekinumab).

Medical Device worldwide operational sales, excluding the net impact of acquisitions and divestitures, grew 58.7%, primarily driven by the benefit of market recovery from COVID-19 impacts, and the associated deferral of medical procedures in the prior year.

Valuation Metrics

Johnson and Johnson’s stock price looks fairly valued at the moment based on EV/EBITDA, which currently stands at 12.3x.

The price-to-normalized earnings ratio of 16.2x is also very close to its five-year average of 16.82x.

Wall Street’s Take

From Wall Street analysts, Johnson and Johnson earns a Moderate Buy analyst consensus, based on four Buy ratings, two Hold ratings, and 0 Sell ratings in the past three months.

The average Johnson & Johnson price target of $188.60 puts the upside potential at 18.2%.

Summary and Conclusions

Johnson and Johnson’s stock is not particularly attractively priced, nor is it particularly expensive right now.

The company’s well-diversified healthcare business model and drug portfolio give it strong cash flow stability, and make it a great dividend growth stock.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

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The post Johnson & Johnson: Is Healthcare Giant on Right Path? appeared first on TipRanks Financial Blog.

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By: Samuel Smith
Title: Johnson & Johnson: Is Healthcare Giant on Right Path?
Sourced From: blog.tipranks.com/johnson-johnson-is-healthcare-giant-on-right-path/
Published Date: Wed, 06 Oct 2021 12:29:39 +0000

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