On July 20, 2023, Johnson & Johnson (JNJ, Financial) experienced a gain of 6.07%, with its stock price reaching $168.38. The company's market cap stands at $437.6 billion, and it reported earnings per share of $4.78. According to GuruFocus, the GF Value of Johnson & Johnson is $181.69, suggesting that the stock is fairly valued.
As the world's largest and most diverse healthcare firm, Johnson & Johnson operates through three divisions: pharmaceutical, medical devices and diagnostics, and consumer. The drug and device groups contribute to nearly 80% of sales and generate the majority of the firm's cash flows. The consumer group is set to be divested in 2023 under the new name Kenvue. The United States accounts for just over half of the company's total revenue.
GF Value and Fair Valuation
The GF Value of a stock is a unique indicator of its intrinsic worth, calculated using historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. When the stock's share price is significantly above the GF Value Line, it may be overvalued, possibly leading to poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, it may be undervalued, potentially resulting in high future returns. Given that Johnson & Johnson's stock price aligns with its GF Value, the stock is considered fairly valued.
As Johnson & Johnson is fairly valued, the long-term return of its stock is likely to be close to its business growth rate.
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Financial Strength
Investing in companies with low financial strength can lead to permanent capital loss. Therefore, a company's financial strength should be carefully reviewed before purchasing shares. Johnson & Johnson has a cash-to-debt ratio of 0.47, ranking lower than 62.12% of companies in the Drug Manufacturers industry. Based on this, GuruFocus ranks Johnson & Johnson's financial strength as 6 out of 10, indicating a fair balance sheet.
Profitability
Companies that consistently show profitability over the long term offer less risk for investors. Johnson & Johnson has been profitable for the past 10 years. Over the past twelve months, the company had a revenue of $96.3 billion and earnings per share of $4.78. Its operating margin is 25.22%, ranking better than 91.2% of companies in the Drug Manufacturers industry. Overall, the profitability of Johnson & Johnson is ranked 9 out of 10, indicating strong profitability.
Growth
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Johnson & Johnson is 5.2%, ranking lower than 52.85% of companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 5.8%, also ranking lower than 57.71% of companies in the industry.
ROIC vs WACC
Another measure of a company's profitability is the comparison of its return on invested capital (ROIC) and the weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. The ROIC of Johnson & Johnson for the past 12 months is 15.41, and its WACC is 5.71.
Conclusion
In conclusion, Johnson & Johnson (JNJ, Financial) is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 57.71% of companies in the Drug Manufacturers industry. For more information about Johnson & Johnson stock, you can check out its 30-Year Financials here.
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