September 26, 2023
Company Summary:
Johnson & Johnson is a renowned multinational pharmaceutical company founded in the early 1870s by Robert Wood Johnson. Initially, the company focused on sterile surgical dressings and expanded into household products and medical guides. Today, J&J is one of the world’s largest corporations, ranking 36th on the 2021 Fortune 500 list and being a Dow Jones Industrial Average member. With operations in 60 countries and 175 countries, J&J’s annual sales in 2023 will be close to $100 billion.
J&J has significantly contributed to healthcare, including advancements in sterile conditions and developing industrial sterilization processes. Notably, the company’s product, Band-Aids, revolutionized wound care. Today, J&J operates in three segments: Pharmaceutical, Consumer Health, and MedTech, encompassing well-known brands such as Aveeno, Listerine, Tylenol, and ACUVUE contact lenses. Its mission is to “blend science and ingenuity to profoundly change the trajectory of health for humanity.”
J&J went public in 1944 and has consistently increased its dividend since 1962. It is a member of the Dividend Aristocrat Index and qualifies as a Dividend King with over 50 consecutive years of dividend increases. The company employs over 142,000 individuals and serves more than 1 billion people daily, boasting an AAA credit rating, making it one of only two US corporations with such a rating and more trusted than the US government.
Maverick Guidance:
- Johnson & Johnson (JNJ) deserves a place in a Moderately Conservative Maverick Investor Portfolio.
- Despite challenges, J&J’s long-term proven adaptability and strong track record position it well for the future, especially with its planned split into two publicly traded companies later this year.
- The current price is $160.26, and the Short-Term Trend is distinctly negative. Having substantially reduced positions in the current quarter, we are avoiding additional purchases pending a $150 price or lower, consistent with a conservative long-term average P/E of 14.
Market Guidance:
- Analyst Consensus Outlook for the Stock: MarketBeat Hold, TipRanks Moderate Buy. There are 13 Wall Street analysts offering 12-month price targets for Johnson & Johnson in the last 3 months. The average price target is $178.64, with a high one-year forecast of $215.00 and a low forecast of $158.00. There are 5 at Buy, and 8 at Hold.
Value Line Guidance:
- Company Financial Strength Rating: A++
- Share Price Safety, Market Timing, and Technical Rank: Share Price Safety: 1/5, Market Timing: 2/5, Technical Rank: 3/5.
Revenue, Cash Flow, Earnings Quarterly Reports Overview:
August 2023: J&J continues to exceed expectations, with top and bottom lines beating estimates in the June quarter. The MedTech segment saw a +12.9% YoY revenue increase, driven by global procedure growth, the recovery in China, and recent product launches. Pharmaceuticals grew +3.1%, excluding COVID-19 vaccine sales, showcasing strength in key drugs and recent launches. Consumer Health unit sales grew +5.4% due to price increases and over-the-counter medicines. The gross margin expanded by 80 basis points, and share earnings rose +8.1% to $2.80. Management raised its 2023 revenue projection and looks for reported sales of $98.8 billion-$99.8 billion. J&J plans to split off its Kenvue Consumer Health division and is currently neutrally ranked for Market Timing.
May 2023: J&J started the year ahead of expectations, with top-line and earnings beating estimates in the March quarter. The Consumer Health division benefited from retailer restocking and price hikes, while Pharmaceuticals gained from key drugs and recent launches. MedTech also performed well due to strong new product performances. Management raised its 2023 revenue projection to $97.9 billion-$98.9 billion, with a stronger second half expected. The company plans to spin off the Consumer Health unit in 2023. Shares of J&J are ranked to outperform the broader market averages in the coming months, offering price stability and decent long-term appreciation potential.
February 2023: J&J ended 2022 with mixed results. While fourth-quarter sales decreased -4%, earnings per share increased by 10% YoY. Sales declined due to unfavorable forex rates and reduced COVID-19 vaccine sales, primarily affecting the Pharmaceutical division. Consumer Health and MedTech segments faced challenges due to high inflation and the Federal Reserve’s measures. J&J plans to spin off the Consumer Health unit in 2023. Shares are ranked to outperform the broader market averages in the next 6-12 months, offering price stability and decent long-term price appreciation potential.
November 2022: J&J’s third-quarter results slightly exceeded expectations, with earnings of $2.55 per share and a +1.9% YoY increase in sales. The US operation performed best, reporting a +4.1% sales increase. The Pharmaceutical division recorded a +2.6% increase in sales, while Consumer Health sales slipped -0.4%. J&J faced headwinds due to inflation and slowing COVID-19 vaccine distribution. Management expects earnings per share between $10.02 and $10.07. The company plans to spin off the Consumer Health unit in 2023. J&J shares offer stability and decent long-term price appreciation potential.
Dividends:
- Dividend Yield: 2.97%, higher than the bottom 25% of all dividend-paying stocks.
- Dividend Growth: J&J has increased its dividend for 62 years.
- Dividend Coverage: The dividend payout ratio is 96.36%, which is above 75% and may be unsustainable.
- Dividend Sustainability: Estimates suggest J&J will have a dividend payout ratio of 43.71% next year, indicating sustainability or potential growth.
The 3 to 5-year Annual Outlook:
- Revenue Growth Potential: +4.0%
- Cash Flow Growth Potential: +4.0%
- Earnings Growth Potential: +5.0%
- Dividend Growth Potential: +5.5%
10-Year Historical Price Chart:
SWOT Analysis Summary:
Strengths:
- Diversified Portfolio
- Strong Brand Recognition
- Global Presence
- Research and Development
- Robust Supply Chain
- Corporate Social Responsibility
Weaknesses:
- Product Recalls
- Litigation Risks
- Dependence on Key Products
- Slow Growth in Some Segments
- Currency Risks
- Patent Expirations
Opportunities:
- Aging Population
- Emerging Markets
- Digital Health
- Mergers and Acquisitions
- Personalized Medicine
- Sustainability
Threats:
- Increasing Competition
- Regulatory and Legal Risks
- Pricing Pressure
- Intellectual Property Risks
- Supply Chain Disruptions
- Technological Advancements
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Note: The Maverick Investor Program, including quarterly reports on Dow 30 companies that fit within one of five portfolio categories, is in development. When I am satisfied that the report format is set, I will try to automate it.