How Johnson & Johnson’s Valuation Changed Post-1Q17



A look at Johnson & Johnson

Johnson & Johnson (JNJ) has an operational presence in over 60 countries, and its products are sold in over 200 countries worldwide. The company reported earnings per share (or EPS) of $1.83 on revenue of $17.8 billion in 1Q17.

The above chart shows a comparison of the company’s EPS estimates and actual EPS over the last few quarters.

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Forward PE

Two important valuation multiples used by investors for valuing large pharmaceutical companies with stable earnings are the forward PE and the forward EV-to-EBITDA multiples. PE represents what one share of a company can buy for an equity investor.

On May 29, 2017, Johnson & Johnson was trading at a forward PE of ~17.2x, compared to the industry average of 16.5x. Other competitors Merck & Co. (MRK), Pfizer (PFE), and Bristol-Myers Squibb (BMY) have forward PEs of 16.3x, 12.2x, and 17.7x, respectively.

Forward EV-to-EBITDA

On a capital structure–neutral basis, Johnson & Johnson is trading at ~11.9x, compared to the industry average of ~13.1x. Other competitors Merck & Co., Pfizer, and Bristol-Myers Squibb have forward EV-to-EBITDA multiples of 10.5x, 9.9x, and 15.3x, respectively.

Analysts’ recommendations

Johnson & Johnson’s stock value has risen over 12.3% in the last 12 months. Analysts estimate that the stock has the potential to return ~2.6% over the next 12 months. Analysts’ recommendations show a 12-month target price of $130.28 per share, compared to the stock’s price of $126.92 per share on May 26, 2017.

Of the 23 analysts tracking Johnson & Johnson, nine have recommended “buys,” and 12 have recommended “holds” on the stock. The consensus rating for Johnson & Johnson is 2.48, a moderate “buy” for value investors.

To divest risk, investors can consider ETFs such as the PowerShares Dynamic Pharmaceuticals ETF (PJP), which holds 5.5% of its total assets in Johnson & Johnson.


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