Should You Pick Johnson & Johnson Stock At $160?

Johnson & Johnson (NYSE: JNJ) reported its Q4 results last month, with revenues and earnings marginally above the street estimates. The company reported revenue of $21.4 billion and adjusted earnings of $2.29 per share, compared to the consensus estimates of $21.0 billion and $2.28, respectively. In this note, we discuss Johnson & Johnson’s stock performance, key takeaways from its recent results, and valuation.

JNJ stock has seen little change, moving slightly from levels of $155 in early January 2021 to around $160 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. Overall, the performance of JNJ stock with respect to the index has been quite volatile. Returns for the stock were 9% in 2021, 3% in 2022, and -11% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that JNJ underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Health Care sector including LLY, UNH, and MRK, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could JNJ face a similar situation as it did 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. We estimate Johnson & Johnson’s Valuation to be $180 per share, reflecting over 10% upside from its current levels of $160. Our forecast is based on a 17x P/E multiple for JNJ and expected earnings of $10.70 on a per-share and adjusted basis for the full year 2024. The 17x P/E multiple aligns with the average value over the last five years.

Johnson & Johnson’s revenue of $21.4 billion in Q4 was up 7% y-o-y. The company reported a 4% rise in Innovative Medicine (pharmaceuticals business) and a 13% growth for its MedTech (medical devices business). The multiple myeloma treatment – Darzalex and the autoimmune drug – Stelara – have been the key growth drivers for the company in the recent past. While Darzalex sales grew 22% to $2.6 billion, Stelara sales were up 15% to $2.8 billion. However, Stelara lost market exclusivity in the U.S. last year. The company expects the biosimilars for Stelara to hit the market next year. Some of the company’s new drugs, including Carvykti – a multiple myeloma treatment, and Spravato – an antidepressant – have been gaining market share. Carvykti alone is expected to garner over $5 billion in peak sales. ^[1]

The strong growth in the MedTech segment can partly be attributed to the Abiomed acquisition, which was closed in Dec 2022. It accounted for nearly 5% of the total 12% rise for the segment in 2023. Electrophysiology and vision continued to drive the organic sales growth for the segment. The company saw its adjusted net income margin contract by 120 bps y-o-y to 26%. Still, the company’s bottom line grew 11% to $2.29 on an adjusted basis, partly due to an 8% decline in shares outstanding after the Kenvue spin-off and $5 billion the company spent on share repurchases in 2023.

Looking forward, the company expects its sales to rise in mid-single-digits and adjusted earnings per share to be in the range of $10.55 and $10.75 in 2024. JNJ stock hasn’t seen much growth over the last twelve months, up a mere 4%, underperforming the S&P500 Heathcare Index, up around 14%. Although the challenging macroeconomic factors, higher costs, and patent expiry for Stelara are some risk factors, we think much of these are already priced in. With JNJ stock trading at 15x forward earnings (versus the average of 17x over the last five years), we think there is some room for growth from here.

While JNJ stock looks like it has some room for growth, it is helpful to see how Johnson & Johnson’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 2/24/2024
[2] Cumulative total returns since the end of 2016

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1. Johnson & Johnson still expects Carvykti to hit at least $5 bln peak sales -CFO, Reuters, Jan 23, 2024 [↩]