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Analysis of Johnson & Johnson Company

Analysis of Johnson & Johnson Company

18 May 2022

Johnson & Johnson is engaged in the research, development, production and sale of various healthcare products around the world.
The company operates in three segments: Consumer Health, Pharmaceutical and Medical Devices.
Consumer Health produces baby care products, oral and skin care products, cold, flu and allergy remedies, smoking cessation products, women’s health products, first aid products, etc.

Pharmaceutical offers products in various therapeutic areas, including immunology, infectious diseases, neurology, oncology, pulmonary hypertension, cardiovascular and metabolic diseases.
The medical devices segment offers electrophysiological products for the treatment of cardiovascular diseases; neurovascular disease care products for the treatment of hemorrhagic and ischemic stroke; orthopedic products for hip support, knees, spine injuries, sports, etc.; advanced and general surgical solutions focused on breast aesthetics, ear surgery, nose and throat; as well as disposable contact lenses.

The company was founded in 1886 and is based in New Brunswick, New Jersey.
Johnson & Johnson is a large-cap company, it employs almost 142 thousand people.
The free cash flow for the last 4 years is $19-20 billion and almost does not change. Net profit increased by 30%, and revenue by 15%, to $94 billion. This is a good result for a company of this size. In the first quarter of 2022, $11 billion out of the $23 billion in revenue came from the American market and $12 billion from the rest of the world. Of these $12 billion, 6 were in Europe, 4 in Asia and Africa, which indicates a good diversification of Johnson & Johnson sales, making the business global, independent of one country.
Over the past 6 years, revenue and operating cash flow have been steadily growing, which indicates the healthy development of the company.
Current multipliers:
P/E 23.8, forward P/E 17.2 (current average for competitors 29.9)
P/B 6.2 (industry average 7.4)
P/S 5 (industry average 4.4)
Debt of $33 billion with current operating cash flow of $23 billion
Dividends 2.5%
Share Price: $178

The cash flow discounting model shows a fair price of $197.
Simply Wall Street values the company at $266.
11 analysts give an average estimate of $193 per share.
Johnson & Johnson has $30 billion in accounts, which allows it to close almost the whole debt. This is a good financial position in the cycle of interest rate increases.

The stock is trading slightly below the 20 and 50-day moving averages, but above the 200-day MA, which runs at 169. Since the end of April, the growth trend has changed to a downward one, or a channel is being formed. In any case, we expect the stock to be lower from the current ones with the first target of $169.

This is not a growth company, within 4 years the quotes have grown by only 47%, while Eli Lilly has grown by 247%. But Johnson & Johnson is a very stable international business that consistently supplies shareholders with cash flow in the form of rising dividends. They can afford them – 56% of net profit and FCF are paid annually.
Johnson & Johnson has been raising dividends for 59 years in a row! Therefore, of course, dividend investors should have such a stock in their portfolio. The only question is, at what price? Now the price is in such a position that the dividend yield is at its lows. Judging by the dividend yield chart, an excellent entry point is a yield of 3% per annum. With the current forward dividend of $4.52, the share price should fall to around $150. Since March 2020, stocks have not fallen so much, but the current inflation and the cycle of interest rate increases will pull stock prices down in the following months, and then there is an opportunity to see Johnson & Johnson shares in the area of $150.

18 May 2022
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