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Johnson & Johnson’s Valuation Compared to Its Peers

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Mar. 13 2017, Updated 4:13 p.m. ET

Johnson & Johnson’s valuation

Headquartered in New Brunswick, New Jersey, Johnson & Johnson (JNJ) has an operational presence in more than 60 countries. Its pharmaceutical and healthcare products are supplied to over 200 countries.

The chart below compares the stock price, price-to-earnings (or PE) multiple, and EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple for Johnson & Johnson. This series explores the major factors and segment-wise performance of the company’s products.

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Forward PE

From an investor’s point of view, the two best valuation multiples used for valuing companies like Johnson & Johnson are forward PE and EV-to-EBITDA multiples, considering the relatively stable and visible nature of their earnings.

PE multiples represent what one share can buy for an equity investor. On March 10, 2017, Johnson & Johnson was trading at a forward PE multiple of ~17.7x, compared to the industry average of 17.0x.

Over the last year, the company’s forward PE has traded in the range of 14.4x–18.2x. Its competitors Pfizer (PFE), Merck & Co. (MRK), and Eli Lilly & Co. (LLY) have forward PE multiples of 13.0x, 16.9x, and 20.0x, respectively.

Forward EV-to-EBITDA

On a capital structure–neutral and excess cash-adjusted basis, JNJ currently trades at ~12.0x, compared to the industry’s average of ~11.9x. Its competitors Pfizer (PFE), Merck & Co. (MRK), and Eli Lilly & Co. (LLY) have forward EV-to-EBITDA multiples of 10.1x, 9.9x, and 14.2x, respectively.

Analyst recommendations

On March 10, 2017, Johnson & Johnson stock increased more than 17.9% over the last 12 months. Wall Street analysts estimate that the stock has the potential to return ~4.2% over the next 12 months. Analysts’ recommendations show a 12-month targeted price of $131.24 per share compared to the last price of $125.95 per share on March 9, 2017.

Of the analysts covering Johnson & Johnson (JNJ), 38% recommended a “buy” and 62% recommended a “sell.” Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.

Investors can consider ETFs like the Vanguard Dividend Appreciation Index ETF (VIG), which holds 3.9% of its total assets in Johnson & Johnson.

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