top of page

Johnson & Johnson Stock Analysis

Updated: Feb 20, 2021



Company: Johnson & Johnson

Ticker: JNJ Previous Close: $165.74 (2/18)

Industry: Pharmaceutical/Medical Devices/Consumer Healthcare


Short-term: Buy

Middle-term: Buy


Long-term: Buy



Fundamental Analysis


Economic Moat:


Free Cashflow

Johnson & Johnson (JNJ):


Free Cashflow: $18,310,000,000

Revenue ( = Sales): $82,584,000,000

Free Cashflow / Revenue (>5%) = 22.17% ➤ This is certainly a good ratio. Looking at this from the dividend paying perspective, we can see that this is also quite the logical value. This firm is known for paying consistent dividends and these strong free cashflows support this value metric.


Net Margins (> 15%)


Johnson & Johnson (JNJ):

Net Income (consolidated) : $14,714,000,000 Revenue : $82,584,000,000 Net Margin = Net Income / Revenue = 17.82% ➤ This is a very decent percentage rating and in the past this percentage was similar which is indicative of extreme consistency on behalf of the company.


ROE (> 15%)


Johnson & Johnson (JNJ):

Return On Equity= Net income/ Shareholder's equity ROE = 24.74% ➤ This is a very good percentage which is a result of their strong net income. In past years this was also the case sometimes even being slightly better, again showing the company over the longer terms has been extremely consistent on the fronts of efficiency and growth.


ROA (> 6%)


Johnson & Johnson (JNJ):

Return On Assets= Net Income / Assets ROA = 9.33% ➤ This is a strong percentage and similar to the other fundamental valuation metrics, this percentage was also similar in the past. Again this results from their strong net income and proves the company is consistently growing and a strong asset over the longer terms.


Economic Moat Conclusion

Johnson & Johnson (JNJ): Altogether, this firm has great free cashflows and net margins. Both their ROE and ROA are also very high to which, when accounting for all the aforementioned factors, we can conclude that JNJ indeed has an economic moat and that they have a good foundation through which they will continue being able to pay dividends to shareholders well into the future.


Valuation


Johnson & Johnson:

For this metric we will use their current free cashflow of $18,310,000,000. It should first be noted that in the past, their cashflow mostly had an upward trend. Based on recent figures, JNJ can be assumed to have an average yearly growth of 9% in the first 5 years and 6% after that. Due to the firm's economic moat and strong dividend, a sizeable discount rate of 7% can be presumed. Taking each of these variables into account and calculating them together, we come to a per-share price of $219.54.


Current Price: $165.74 Estimated Fair Value: Price $219.54 ➤ 24.12% Margin of Safety ➤ This value seems to be right around the sweet spot. Usually for a strong and steady company it is preferred that they have a safety margin of 20%, which is currently the case here. This factor, in sum, leads investors to the conclusion that JNJ is currently well-valued or even slightly under-valued depending on one's outlook.


20 Point In-Depth Analysis


1. CEO

Johnson & Johnson: Alex Gorsky is the CEO and has been since 2012; however, he has been with the company for much longer than that. Interesting to note though is that his career with JNJ has been a bt more unconventional than most. In short, he joined JNJ in 1988, left them in 2004 to join another pharmaceutical company after which he came back to the firm in 2008. This joining and leaving on different occasions is thus two-fold in nature in the sense that he acquired more experience, a valuable trait for a CEO leading a Fortune 500 company, but it also shows that he could leave once more if a better opportunity were to arise. Additionally, Gorsky at the helm of the company has been both criticized and praised over the years. For example, he has been accused of being actively involved in the Risperdal fraud that proved extremely detrimental to the company at one point and time. On the other hand, he has been named one of the “100 Most Inspiring Leaders” by Pharma Voice. All in all, Gorsky seems to be a seasoned leader with more than enough experience to continue pushing the firm forward into the future but again, he is quite the unusual CEO. Whether or not you like his means of conducting business and mode of operation, the firm has stayed successful and consistent throughout the years which, above all else, is most important.


2. Is the company innovative?

Johnson & Johnson: Innovation, both incremental and disruptive, are necessary in the pharmaceutical and consumer healthcare industry. There are still many health problems that plague humanity and to which no solutions or cures have yet been found. In this instance there is strong emphasis on the word “yet” since extensive R&D is constantly being done to resolve these issues. In order to solve these problems and yield current solutions, JNJ tries to innovative by creating new healthcare methods and products to be utilized.They do this by working together with entrepreneurs and innovators across the world in the consumer healthcare and pharmaceutical fields. Via this the creation and sustaining of these valuable partnerships JNJ does, in fact, continue to grow and innovate.



3. Can the company grow?

Johnson & Johnson: There certainly is room for this firm to grow. As explained in the previous point, the healthcare industry has no shortage of problems, ailments, and/or diseases to be resolved and tended to. The good thing about JNJ is that they have enough capital to fund the R&D needed to solve these problems and keep them on the side of cutting-edge development and growth.