Johnson & Johnson (JNJ, Financial) recently experienced a daily gain of 3.66%, despite a three-month loss of 5.23%. With an Earnings Per Share (EPS) of 16.04, investors are keen to determine whether the stock is modestly undervalued. This article delves into the intrinsic value of Johnson & Johnson, exploring various financial metrics and market conditions to assess its current valuation.
Company Overview
Johnson & Johnson is the world's largest and most diverse healthcare firm, comprising three main divisions: pharmaceutical, medical devices and diagnostics, and consumer health. The pharmaceutical and medical devices sectors account for approximately 80% of the company's sales, driving the majority of its cash flows. These sectors focus on areas such as immunology, oncology, neurology, and cardiology. The consumer health division, soon to be spun off under the name Kenvue, includes products in baby care, beauty, and over-the-counter drugs. More than half of Johnson & Johnson's revenue is generated in the United States.
Understanding the GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and estimated future business performance. If Johnson & Johnson's stock price significantly deviates from the GF Value, it might indicate that the stock is either overvalued or undervalued, suggesting different potential returns for investors.
Currently, Johnson & Johnson's stock price stands at $149.88, with a market capitalization of $361.20 billion. According to the GF Value of $188.28, the stock appears to be modestly undervalued, suggesting a potentially higher future return relative to its business growth.
Financial Strength and Stability
Investing in a company with solid financial strength is crucial to mitigate risks of permanent loss. Johnson & Johnson's cash-to-debt ratio is 0.78, which, although lower than many of its peers, still supports a fair financial strength rating of 7 out of 10. This assessment assures investors of the company's capability to manage its debts effectively.
Profitability and Growth Prospects
Johnson & Johnson has maintained profitability over the past decade, with an impressive operating margin of 25.77%, ranking it higher than 92.44% of its industry peers. However, its revenue growth rate of 2.5% per year is below industry average, reflecting potential challenges in expanding its market reach.
Furthermore, the comparison between its Return on Invested Capital (ROIC) of 13.64 and the Weighted Average Cost of Capital (WACC) of 6.24 indicates efficient capital management, as the company generates higher returns on investment than the costs of its capital.
Conclusion
In conclusion, Johnson & Johnson (JNJ, Financial) presents itself as a modestly undervalued investment opportunity based on its current market price and GF Value. The company's strong financial health and profitability, combined with its effective capital management, make it an attractive option for value investors. For a deeper understanding of Johnson & Johnson's financials and potential investment returns, consider exploring its 30-Year Financials here.
To discover other high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
