Johnson & Johnson recently released its financial results for the first quarter, reporting 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. This article discusses J&J’s stock performance, key takeaways from its recent results, and valuation.
J&J’s stock has seen little change in recent years, moving from around $155 in early 2021 to $145 currently, compared to the S&P 500’s 35% increase over the same period. J&J stock performance has been volatile, with returns of 9% in 2021, 3% in 2022, and -11% in 2023, underperforming the S&P 500. The Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the index over the same period.
Given the uncertain macroeconomic environment, with high oil prices and elevated interest rates, could J&J face underperformance over the next year? From a valuation perspective, J&J stock appears to have room for growth. With an estimated valuation of $180 per share, reflecting over 20% upside from current levels of $145, based on a 17x P/E multiple and expected earnings of $10.70 per share for 2024.
J&J’s revenue in Q1 was up 2.3% year-over-year, with growth in both its pharmaceuticals and medical devices businesses. Excluding the Covid-19 vaccine, pharmaceutical sales grew 8.3%, driven by market share gains for various drugs. The MedTech segment saw strong growth attributed to the Abiomed acquisition, with adjusted net income margin expanding by 40 bps year-over-year to 30.8%.
Although J&J stock has lost nearly 10% this year, underperforming the S&P 500, there is room for growth as many challenges, such as macroeconomic factors and patent expiry for Stelara, are already priced in. With the stock trading at under 14x forward earnings, compared to the average of 17x over the last five years, there is potential for growth. Peer comparisons can provide valuable insights into how J&J’s performance stacks up against its competitors.
Overall, Johnson & Johnson’s recent financial results indicate some potential for growth in its stock price. Despite challenges and underperformance so far this year, the company’s strong performance in its pharmaceuticals and MedTech segments, coupled with a favorable valuation, suggests opportunities for investors. Keep an eye on how J&J’s peers are performing to gain further insights into the company’s future prospects.
