As of July 20, 2023, the stock price of Johnson & Johnson (JNJ, Financial) has experienced a gain of 6.07%, with the price sitting at $168.38 per share. With a market capitalization of $437.6 billion and annual sales of $96.3 billion, the company's financial metrics are robust. The GF Value, a unique valuation approach used to ascertain a stock's intrinsic worth, stands at $181.69, indicating that Johnson & Johnson is fairly valued.
Johnson & Johnson is the world's largest and most diverse healthcare firm, with three main divisions: pharmaceutical, medical devices and diagnostics, and consumer. The drug and device groups represent close to 80% of sales and drive the majority of cash flows for the firm. The consumer group, focusing on baby care, beauty, oral care, over-the-counter drugs, and women's health, is being divested in 2023 under the new name Kenvue. Geographically, just over half of total revenue is generated in the United States.
Valuation of Johnson & Johnson Stock
According to GuruFocus Value calculation, Johnson & Johnson (JNJ, Financial) stock is believed to be fairly valued. The GF Value is derived from historical trading multiples, past business growth, and analyst estimates of future business performance. If a stock's price significantly surpasses the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given its current price and market cap, Johnson & Johnson's stock appears to be fairly valued.
As Johnson & Johnson is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Johnson & Johnson's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company’s financial strength before deciding whether to buy 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, suggesting a fair balance sheet.
Profitability of Johnson & Johnson
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Johnson & Johnson has been profitable 10 times over 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 of Johnson & Johnson
Growth is probably the most important factor in the valuation of a company. 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%, ranking lower than 57.71% of companies in the Drug Manufacturers industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). For the past 12 months, Johnson & Johnson’s return on invested capital is 15.41, and its cost of capital is 5.71.
Conclusion
In summary, the stock of Johnson & Johnson (JNJ, Financial) is believed to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks lower than 57.71% of companies in the Drug Manufacturers industry. To learn more about Johnson & Johnson stock, you can check out its 30-Year Financials here.
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