Bill Cara

A study of Johnson & Johnson (NYSE: JNJ)

August 6, 2023

The Johnson & Johnson (JNJ) August 4 closing price was $169.04 ($168.88 after hours). Analysts’ average price target is $182.00, with a high forecast of $215.00 and a low forecast of $170.00.

With 12 analysts giving stock ratings to JNJ, there are 4 Buys & 8 Holds. One month ago, the numbers were 5 Buy & 7 Hold. Three months ago, it was 6 Buy & 7 Hold.

Dividend Yield: 2.74% ($4.64)

Beta is 0.33.

Johnson & Johnston reported Q2 on July 19 and Q1 on April 17.

JNJ’s performance was strong in its Q1 and Q2 2023 reports, with growth across various segments. The company’s revenue projections were consistently raised and showed resilience despite challenges such as inflationary impacts and currency fluctuations. The adjusted earnings outlook improved. While most financial indicators improved or remained stable, there was a slight decrease in the August report’s return on shareholder equity and retained earnings proportion. The strategic spinoff of the Consumer Health unit and the acquisition of Kenvue were also notable developments.

The stock has the highest Value Line rank for Safety and Financial Strength (A++). The stock might be attractive on a risk-adjusted basis. But the baby powder talc asbestos litigation remains the primary risk concern for investors and may deter some.

https://www.tipranks.com/news/johnson-johnson-nysejnj-latest-talc-trouble-sinks-shares

Q2 Highlights:

  • JNJ continued to perform ahead of expectations in the June quarter.
  • The MedTech segment revenues significantly rose year over year, driven by recovery, product launches, and the Abiomed acquisition.
  • The Pharmaceuticals segment grew, excluding COVID-19 vaccine sales, due to strength in key drugs and launches.
  • Price increases and strength in over-the-counter medicines boosted the Consumer Health unit’s sales.
  • JNJ’s global sales grew and beat consensus estimates.
  • Gross margin expanded due to favorable patient mix and lower COVID-19-related costs.
  • Share earnings rose significantly above consensus estimates.
  • Management raised the 2023 revenue projection to $98.8 billion-$99.8 billion.
  • Positive outlook for the year’s second half, assuming wider operating margins.
  • Separation of Consumer Health (Kenvue) allows focus on more promising segments.
  • Kenvue’s IPO and share split-off provided financial flexibility.

Q1 Highlights:

  • JNJ had a strong start to 2020, beating expectations.
  • Retailer restocking and price hikes boosted the Consumer Health division’s sales, improving margins.
  • The Pharmaceutical group benefited from the strength of key drugs and recent launches, though margins narrowed due to the product mix.
  • The MedTech segment gained from global procedure recovery and the Abiomed acquisition, but margins were flat due to inflationary impacts.
  • Share earnings grew modestly due to narrower margins in the Pharmaceutical segment and a higher tax rate.
  • Management raised the 2023 revenue projection to $97.9 billion-$98.9 billion.
  • Positive outlook for the rest of the year, especially for the Consumer Health and Pharmaceutical segments.
  • The spinoff of the Consumer Health unit is expected to enhance focus on more promising segments.
  • JNJ’s R&D, acquisitions, and partnerships investments are expected to support future earnings growth.

Forward-Looking Metrics Comparison (Using Q2 vs. Q1, 2023 data):

2023 estimated Sales per share: Increased from $38.05 to $38.65.

2023 estimated Cash Flow per share: Increased from $13.45 to $13.70.

2023 estimated Earnings per share: Increased from $10.60 to $10.70.

2023 estimated Dividends Declared per share: Increased from $4.70 to $4.95.

2023 estimated Capital Spending per share: Increased from $1.60 to $1.70.

2023 estimated Book Value per share: Increased from $32.35 to $33.75.

Common Shares Outstanding: Estimated to fall from 2.629 billion to 2.580 billion.

Operating Margin: Estimated to increase from 38.9% to 39.5%.

Net Profit Margin: Estimated to fall from 28.5% to 28.3%.

Working Capital: Expected to grow from a deficit of $508 million to a surplus of $16.0 billion.

Long-Term Debt: Expected to decrease from $26.335 billion to $24.205 billion.

Return on Total Capital: Expected to fall slightly from 26.1% to 26.0%.

Return on Shareholders’ Equity: Expected to fall from 35.2% to 33.5%.

Bill Cara’s Maverick Investor assessment:

Johnson & Johnson has always been a pre-eminent Healthcare sector company and a bellwether; however, the baby powder talc asbestos litigation is why I chose UnitedHealth Group (UNH) among Health Care companies for the Maverick Investor portfolio.