Johnson & Johnson (JNJ): Analyzing Signals Before Quarterly Earnings

Boasting a market cap of $389.21 billion, leading pharma giant Johnson & Johnson (JNJ) is all set to lift the curtains on its fourth-quarter results (ended December 2023) on January 23, 2024. Thus, this article sheds light on the fundamentals of JNJ to determine the stock’s worthiness as an investment candidate. Let’s understand in detail.

While JNJ’s third-quarter profit remained flat year-over-year, its top line, on the other hand, witnessed solid year-over-year growth. The company topped its Wall Street revenue and EPS estimates for the same quarter. Additionally, its EPS boasts an admirable track record of consistently outperforming Street estimates in each of the trailing four quarters.

Moreover, JNJ’s pharmaceutical sales for the third quarter rose 5.1% year-over-year to $13.89 billion, exceeding Wall Street’s estimate of $13.34 billion. The company's impressive pharmaceutical sales growth can be attributed to the success of its key products, including Darzalex, used for the treatment of multiple myeloma, and Erleada, employed in addressing prostate cancer and various oncology treatments.

Notably, JNJ’s blockbuster drug Stelara, known for its efficacy in treating immune-mediated inflammatory diseases, also played a pivotal role in driving this upward trajectory.

Meanwhile, the company’s MedTech segment, which engages in the sale of medical devices, rose to nearly $7.46 billion, up 10% year-over-year, spurred by the acquisition of Abiomed, a cardiovascular medical technology firm, on December 22, 2022.

On top of it, sales of JNJ’s MedTech segment were further bolstered by its electrophysiological products for assessing the heart's electrical system, wound closure products, orthopedic trauma devices, and contact lenses.

The drugmaker further solidified its position through the acquisition of Ambrx Biopharma, Inc. (AMAM), a clinical-stage biopharmaceutical company, on January 8, 2024. AMAM’s promising pipeline of clinical and preclinical programs, particularly in prostate and breast cancer, aligns with JNJ's goal of providing transformative cancer treatment.

The acquisition enhances JNJ's oncology portfolio, offering targeted therapies with reduced side effects, and underscores its commitment to advancing precision biologics for improved patient outcomes.

Furthermore, on January 2, 2024, JNJ’s Board of Directors declared a quarterly dividend of $1.19 per share, payable to its shareholders on March 5, 2024. The company’s annual dividend of $4.76 translates to a 2.94% yield on the prevailing prices, while its four-year average dividend yield is 2.64%.

Its dividend payouts have grown at CAGRs of 5.7% and 5.8% over the past three and five years, respectively. Also, JNJ has a record of 61 years of consecutive dividend growth. In terms of price performance, JNJ’s shares have soared 6.2% over the past three months and 3.3% over the past month to close the last trading session at $161.68.

Here are the financial aspects of JNJ that could influence its performance in the near term:

Strong Financials

JNJ's sales to customers for the third quarter (ended October 1, 2023) increased 6.8% year-over-year to $21.35 billion, while its gross profit rose 6.7% from the prior-year quarter to $14.75 billion. The company’s adjusted net earnings from continuing operations grew 14.1% year-over-year to $6.78 billion. In addition, its adjusted EPS came in at $2.66, up 19.3% from the year-ago value.

Robust Profitability

JNJ’s trailing-12-month EBIT and levered FCF margins of 27.97% and 21.46% are significantly higher than the 0.41% and 0.29% industry averages, respectively. Its trailing-12-month cash per share of $8.20 is 549.9% higher than the $1.26 industry average. Furthermore, the stock’s trailing-12-month EBITDA margin of 35.49% is 567.8% higher than the 5.31% industry average.

Discounted Valuation

In terms of forward non-GAAP P/E, JNJ is trading at 16.31x, 15.9% lower than the industry average of 19.40x. Likewise, its forward EV/EBITDA multiple of 12.52 is 6.9% lower than the industry average of 13.45. Furthermore, its forward EV/EBIT multiple of 14.18 is 18% lower than the industry average of 17.29x.

POWR Ratings Exhibit Solid Prospects

JNJ’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JNJ has a B grade for Value justified by its discounted valuation. Likewise, its B grade for stability is in sync with its 24-month beta of 0.33. Moreover, the stock’s B grade for Quality is consistent with its higher-than-industry profitability metrics.

Within the Medical - Pharmaceuticals industry, JNJ is ranked #10 out of the 162 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, and Sentiment. Get all JNJ ratings here.

Bottom Line

As JNJ continues to drive innovation in the healthcare space through ground-breaking solutions and strategic acquisitions, the company emerges as an enticing investment opportunity, supported by its impressive financial performance in the third quarter and high profitability. Moreover, the added factor of an attractive valuation and dividend yield further solidifies its appeal as a sound investment choice.  

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

While JNJ has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Medical - Pharmaceuticals industry: Novartis AG (NVS), Novo Nordisk A/S (NVO), and Santen Pharmaceutical Co., Ltd. (SNPHY), with an A (Strong Buy) rating. For exploring more Medical - Pharmaceuticals stocks, click here.  

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JNJ shares were trading at $162.22 per share on Monday afternoon, up $0.54 (+0.33%). Year-to-date, JNJ has gained 3.50%, versus a 1.81% rise in the benchmark S&P 500 index during the same period.

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