JNJ Stock A Winner Right Now?

We believe that Johnson & Johnson stock (NYSE: JNJ) is currently a better pick than Procter & Gamble stock (NYSE: PG) as it appears to show more promise over the coming years. 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 P&G being a consumer defensive company – they share a similar revenue base of around $85 billion. Furthermore, they have a similar market capitalization of ~$400 billion, and both are also a part of the Dow 30 Index. There is more to the comparison, and in the sections below, we discuss why we think J&J will outperform P&G in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.

1. Returns For PG Stock Have Been Better Than For JNJ

PG stock has witnessed gains of 35% from levels of $125 in early January 2021 to around $170 now, while JNJ stock has shown gains of 15% from levels of $145 to around $165 over this period. This compares with an increase of about 50% for the S&P 500 over this period.

However, the increase in PG and JNJ stocks has been far from consistent. Returns for PG stock were 21% in 2021, -5% in 2022, and -1% in 2023, while for JNJ stock were 11%, 6%, and -9%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that both PG and 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 Consumer Staples sector including WMT, COST, and KO, 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. P&G Has Also Seen Better Revenue Growth

P&G has seen its revenue rise at an average annual growth rate of 3.4% from $76 billion in fiscal 2021 (fiscal ends in June) to $84 billion in 2024. In comparison, J&J saw its sales rise at a 1.1% average rate over the last three years.

P&G’s largest segment is Fabric & Home Care, contributing around 35% of the company’s revenues. It has also seen a steady rise in sales over recent years. However, it has lately seen its top-line expansion led by pricing gains over volume growth. The company reported a 4% rise in total organic sales in fiscal 2024, driven by a 4% growth in pricing, while volume/mix remained flat.

Looking at J&J, the 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).

Our Procter & Gamble Revenue Comparison and Johnson & Johnson 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, due to a weakening consumer demand environment, while pricing gains may continue to aid the sales growth. For J&J, Stelara’s decline in sales will partly offset the growth from its newer drugs and medical devices.

3. J&J Is More Profitable 

P&G’s operating margin of 23.7% in fiscal 2024 aligns with the level seen in fiscal 2021, while J&J’s operating margin has expanded from 23.9% in 2020 to 27.5% in 2023. Looking at the last twelve-month period, J&J’s operating margin of 28% fares better than 24% for P&G.

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

Looking at financial risk, we believe J&J has a slight edge over P&G. P&G’s 8% debt as a percentage of equity is slightly lower than 10% for J&J but its 8% cash as a percentage of assets is well below 14% for the latter. This implies that P&G has a slightly better debt position, but J&J has a better cash cushion.

5. The Net of It All

We see that P&G has seen better revenue growth and has a slightly better debt position. On the other hand, J&J is more profitable and has more cash cushion. Now, looking at the prospects, we believe J&J is the better choice of the two. We estimate Procter & Gamble’s Valuation to be $170 per share, aligning with its current market price. At its current levels, PG stock is trading at 24x forward expected earnings of $7.00 on a per-share and adjusted basis. The 24x figure aligns with the stock’s average P/E ratio over the last five years. In comparison, J&J stock trades at 16x forward earnings, compared to the stock’s average P/E ratio of 17x over the last five years. This implies that JNJ stock has some room to grow, while PG stock looks appropriately priced, in our view.

While JNJ may outperform PG in the next three years, it is helpful to see how Procter & Gamble’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 8/26/2024
[2] Cumulative total returns since the end of 2016

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