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.
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.
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.
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.