With a daily loss of 2.99%, a 3-month gain of 6.93%, and an Earnings Per Share (EPS) of 4.94, Johnson & Johnson (JNJ, Financial) presents an intriguing case for investors. Is the stock fairly valued? This article provides a comprehensive analysis to answer this question.
Company Overview
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 represent close to 80% of sales and drive the majority of cash flows for the firm. With over half of total revenue generated in the United States, Johnson & Johnson has a significant presence in the healthcare sector.
Understanding GF Value
The GF Value denotes the intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. It offers a comprehensive perspective on the fair trading value of the stock.
Valuation of Johnson & Johnson (JNJ, Financial)
Based on the GF Value calculation, Johnson & Johnson (JNJ) stock is estimated to be fairly valued. The current stock price of $167.33 per share and a market cap of $434.90 billion align with this estimation. 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.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Johnson & Johnson has a cash-to-debt ratio of 0.63, which is worse than 56.95% of 1029 companies in the Drug Manufacturers industry. However, Johnson & Johnson's overall financial strength is ranked 7 out of 10 by GuruFocus, indicating fair financial strength.
Profitability and Growth
Johnson & Johnson has been profitable 10 years over the past 10 years, with revenues of $97.80 billion and an operating margin of 25.5% better than 90.93% of 1036 companies in the Drug Manufacturers industry. However, its growth ranks worse than 57.56% of 886 companies in the Drug Manufacturers industry, with a 3-year average revenue growth rate worse than 52.85% of 912 companies in the industry.
ROIC vs WACC
Comparing its return on invested capital (ROIC) of 14.82 to its weighted average cost of capital (WACC) of 6.14, Johnson & Johnson is creating value for shareholders.
Conclusion
In conclusion, Johnson & Johnson (JNJ, Financial) stock is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than most 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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