A Look at Johnson & Johnson’s Valuation ahead of Its 2Q16 Results


Jul. 18 2016, Updated 9:05 a.m. ET

Valuation multiples

After the release of its 1Q16 earnings results on April 19, 2016, Johnson & Johnson (JNJ) was trading at a forward PE (price-to-earnings multiple) in the range of 16.8x–18.6x.

On July 12, 2016, Johnson & Johnson was trading at a forward PE of 18.5x, lower than its peers General Electric (GE) and Abbott Laboratories (ABT) but higher than Philips (PHG). Investors interested in investing in Johnson & Johnson can consider the Guggenheim S&P 500 Equal Weight Health Care ETF (RYH), which provides diversified exposure to Johnson & Johnson. JNJ accounts for 1.9% of RHY’s total holdings.

The above graph compares the forward PEs of Johnson & Johnson and its peers. Forward PE is a growth measure that’s calculated by dividing a company’s stock price by its 12-month earnings estimate.

Due to Johnson & Johnson’s wide geographic presence, expansive product portfolio, established leading products, strong capital allocation strategies, and strong cash flow, its valuation multiple has witnessed a gradual rise since its 1Q16 earnings release despite its missing revenue estimates.

To learn more about Johnson & Johnson’s expansion strategies and initiatives for its Medical Devices business, you can read How Healthcare Giant Johnson & Johnson Is Continuing to Expand.

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JNJ’s share price movement

Johnson & Johnson’s stock was trading at $122.9 as of July 11, 2016. It has a 50-day moving average of $116.9 and a 200-day moving average of $109.1. On July 11, 2016, Johnson & Johnson was trading at a 52-week high of $123.4. The stock was trading at a 52-week low of $81.8 on August 24, 2015.

The company’s share price rose by ~2% after the release of its 1Q16 earnings on April 19, 2016. The rise in its stock price was triggered by higher-than-expected earnings, though its revenue missed by a marginal 0.1%.

Since then, JNJ’s price has risen by ~10.8%. Its stock has returned ~23.5% over the last 12 months.


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