Johnson & Johnson (NYSE: JNJ) recently reported its Q1 results, with revenues slightly below but earnings exceeding estimates. The company reported revenue of $21.4 billion and adjusted earnings of $2.71 per share, compared to estimates of $21.5 billion and $2.68, respectively. JNJ stock has seen little change in recent years, with returns of 9% in 2021, 3% in 2022, and -11% in 2023. Consistently beating the S&P 500 has been difficult for individual stocks, including JNJ, in recent years.
Given the current uncertain macroeconomic environment, could JNJ face a similar situation as in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, JNJ stock looks like it has some room for growth. The company’s Valuation is estimated to be $180 per share, reflecting over 20% upside from its current levels of $145. J&J’s adjusted earnings per share for 2024 are expected to be in the range of $10.57 and $10.72, with a 17x P/E multiple based on the average over the last five years.
In Q1, Johnson & Johnson’s revenue was up 2.3% y-o-y, with growth in its pharmaceuticals and medical devices businesses. Excluding the Covid-19 vaccine, pharmaceutical sales grew 8.3% y-o-y, led by market share gains for several drugs. The MedTech segment saw strong growth partly due to the Abiomed acquisition, with electrophysiology and wound closure products driving organic sales growth. Adjusted net income margin also expanded by 40 bps y-o-y to 30.8%, leading to a 12% rise in the company’s bottom line.
Despite JNJ stock losing nearly 10% this year and underperforming the S&P 500, there is room for growth with the stock trading at under 14x forward earnings. Challenging macroeconomic factors, higher costs, and patent expiry for Stelara are some risk factors, but much of these are already priced in. With JNJ stock trading below the average P/E multiple over the last five years, there is potential for growth from current levels.
In conclusion, Johnson & Johnson’s recent Q1 results show steady growth in revenue and earnings, with the company’s pharmaceuticals and medical devices businesses driving performance. While JNJ stock has underperformed the S&P 500 in recent years, there is room for growth based on valuation metrics. Despite challenges such as macroeconomic factors and patent expiry, much of these risks are already accounted for in the stock price. Overall, JNJ stock presents an opportunity for growth potential in the coming months. Investors may want to keep an eye on how the company navigates these challenges and capitalizes on its strengths in the pharmaceuticals and MedTech sectors.
