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Johnson & Johnson Just Took Growth to Another Level

Stock (Symbol)

Johnson & Johnson (JNJ)

Stock Price

$140

Sector
Healthcare
Data is as of
November 12, 2017
Expected to Report
Jan 23
Company Description
johnson_and_johnson_logoJohnson & Johnson is a holding company. The Company is engaged in the research and development, manufacture and sale of a range of products in the health care field. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices. The Company’s subsidiaries operate 134 manufacturing facilities occupying approximately 21.5 million square feet of floor space. Source: Thomson Financial
Sharek’s Take
David SharekJohnson & Johnson (JNJ) has embarked on a higher level of growth. J&J’s sales increased a whopping 10% last qtr, well above the 2% growth the company had 2 qtrs ago. And profits surged 13%, which is double the rate JNJ normally grows at. And at the heart of growth, is a weakening dollar, which actually helped sales 1% last qtr. Foreign exchange had taken a toll on JNJ’s profits. From 2012-2016 currency reduced sales by 2.7%, 1.6%, 1.9%, 7.5% and 1.3% respectively. Now the USD is weaker. Here’s JNJ’s segment breakdown:

  1. Pharmaceutical is the largest division with almost half of sales and serves the immunology, infectious disease, neuroscience and oncology fields. Sales in this division jumped 15% last qtr.
  2. Medical devices is 31% of company sales and includes the cardiovascular, diabetes, diagnostics, orthopaedic, surgery and vision care fields. Sales increased 7% last qtr.
  3. The Consumer division is 17% of sales and includes Tylenol, Motrin, Benadryl, Band-Aid, Listerine, Carefree and Neutrogena. Consumer sales grew 3% last qtr.

J&J’s credo is “Business must make a sound profit” and JNJ has delivered profit growth every year since 1984. The company has a AAA rating from S&P, has increased its dividend every year since 1963, and yields a plump 3%. The stock has a P/E of 18, which is high by historical measures, but I feel this core holding is worthy of a P/E of 19. Profits are expected to climb an average of 8% the next 4 qtrs, and since JNJ has beaten the street the last 9 qtrs I imagine 10% profit growth is in reach. That would be fantastic! J&J and Microsoft are two of the safest stocks in the world, and I consider JNJ a stock that can be held by conservative investors or trust accounts for generations.

One Year Chart
Nice profit growth along the bottom. Yes, some of the numbers are in red, but that’s because I like 10% profit growth out of my conservative stocks. Still, JNJ is a great stock when you add the Est. LTG of 7% with a yield of 3%. Estimates are for 9%, 9%, 9% and 5% profit growth the next 4 qtrs but I envision 10% growth for the next year. 10% growth out of JNJ with a P/E is 18 is a good deal.
Fair Value
My Fair Value is 19x earnings, but I think this stock could get a P/E between 20 and 22. I will probably up my Fair Value next qtr. Also, 2017 profit estimates have risen in the last four qtrs from $7.04 to $7.11, $7.18 and $7.28. I think a lot of that’s due to F/X.
Bottom Line
Johnson & Johnson is a fabulous stock for conservative investors, and with profit growth now on another level this stock is very timely right now. This stock makes for a fine core holding for retirees. During the last three qtrs JNJ has jumped from 26th to 14th and now 10th in my Conservative Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

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