Is Disney A Better Pick From The Dow Jones Index Over Johnson & Johnson Stock ?

Given its attractive valuation, we believe that Disney stock (NYSE: DIS) is currently a better pick than the pharmaceuticals bellwether – Johnson & Johnson stock (NYSE: JNJ). The decision to invest often comes down to finding the best stocks within the scope of certain characteristics that suit an investment style. In this case, although these companies are from different sectors — with J&J being a healthcare giant and Disney being a communication service company — they share a similar revenue base of around $85-$90 billion, and both are also a part of the Dow Jones 30 Index. There is more to the comparison, and in the sections below, we discuss why we think Disney will outperform J&J in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation in an interactive dashboard analysis – Johnson & Johnson vs. Disney, parts of which are summarized below.

1. J&J Stock Has Fared Better Than Disney

JNJ stock has witnessed gains of 20% from levels of $140 in early January 2021 to around $165 now, vs. a sharp decline of 50% from $180 to $90 for DIS stock over the same period. In comparison, the S&P 500 has risen 45% over this roughly three-year period. The sell-off in Disney has been driven by several factors. Disney’s streaming business has been witnessing slowing subscriber growth and mounting competition. The linear TV business has also seen a weak performance of late, due to lower advertising and a decline in affiliate revenues in the domestic market.

However, the changes in these stocks have been far from consistent. Returns for JNJ were 11% in 2021, 6% in 2022, and -9% in 2023, while that for DIS were -15%, -44%, and 4%, respectively. 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 and DIS underperformed the S&P in 2021, 2022, 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 heavyweights in the Health Care sector including UNH, PFE, 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.

2. But Disney Has Seen Better Revenue Growth

J&J has seen its adjusted revenue rise 8% from $78.7 billion in 2021 to $85.2 billion in 2023. In comparison, Disney saw its sales rise 32% from $67.4 billion in fiscal 2021 (fiscal ends in September) to $88.9 billion in fiscal 2023.

J&J’s revenue growth was led by higher sales in pharmaceuticals and medical devices. J&J’s multiple myeloma treatment – Darzalex – and the autoimmune drug – Stelara – have been the key growth drivers for the company’s pharmaceuticals business in the recent past. Some of the company’s new drugs, including Carvykti – a multiple myeloma treatment, and Spravato – an antidepressant – have been gaining market share. On the flip side, though, J&J also has some relatively older drugs that face generic competition and have seen their sales fall. For example, Remicade sales have declined by 48% between 2021 and 2023. Also, growth in the sale of pharmaceuticals will be weighed down in the coming years due to the loss of the U.S. market exclusivity for Stelara in 2025. Beyond pharmaceuticals, J&J’s medical devices business has been doing well — especially Cardiovascular Care, which has benefited from the Abiomed acquisition (J&J acquired Abiomed in 2022).

For Disney, the sales growth has been driven by the company’s theme park business, which saw footfalls and average spending rebound in recent years, after Covid-19 related restrictions were eased. Higher revenues from the streaming business have also contributed to its top-line growth. Disney has seen a rise in number of subscribers and average revenue per user for its streaming business. That said, the overall subscriber growth has been slowing. For perspective, Disney+ core subscribers grew only 1% sequentially in the third quarter of fiscal 2024, while Disney+ Hotstar subscribers were down 1%, and Hulu subscribers gained 2%.

Our Johnson & Johnson Revenue Comparison and Disney Revenue Comparison dashboards provide more insight into the companies’ sales. Looking forward, we think both companies will see their top-line expand at an average annual rate in the low single-digits. For J&J, Stelara’s decline in sales will partly offset the growth from its newer drugs and medical devices and for Disney, revenue growth will largely be driven by its theme parks business.

3. J&J Is More Profitable 

J&J’s operating margin has expanded from 26.6% in 2021 to 27.5% in 2023, while that for Disney nearly doubled from 5.4% to 10.1% over this period. Looking at the last twelve-month period, J&J’s operating margin of 27.6% fares much better than 12.5% for Disney. Looking forward, Disney expects higher costs and normalization in attendance for its theme parks business, which may weigh on the company’s overall margin profile.

4. J&J Looks Much Better In Terms of Financial Risk

Looking at financial risk, J&J has an edge over Disney. J&J’s 10% debt as a percentage of equity is much lower than 29% for Disney, and its 14% cash as a percentage of assets is well above 3% for the latter. This implies that J&J has a much better debt position as well as cash cushion.

5. The Net of It All

We see that Disney has seen better revenue growth, but J&J is more profitable and offers lower financial risk. Now, looking at the prospects, we believe Disney is the better choice of the two. We estimate Johnson & Johnson’s Valuation to be $172 per share, marginally above its current market price of $166. At its current levels, JNJ stock is trading at 17x forward expected earnings of $10.04 on a per-share and adjusted basis. The 17x figure aligns with the stock’s average P/E ratio over the last three years. In comparison, we estimate Disney’s valuation to be around $116 per share, which is about 30% ahead of the current market price. At its current levels, DIS stock is trading at 18x forward expected adjusted earnings of $4.94 per share in 2024. The 18x figure is much lower than the stock’s average P/E ratio of 28x seen over the last three years. This implies that DIS stock has ample room to grow, while JNJ stock looks appropriately priced, in our view.

While DIS may outperform JNJ in the next three years, 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 9/16/2024
[2] Cumulative total returns since the end of 2016

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