JNJ’s forward valuation multiple
As of January 18, 2018, Johnson & Johnson (JNJ) was trading at a PE (price-to-earnings) ratio of 25.5x, and it has a 12-month forward PE ratio of 18.6x. This shows that analysts expect JNJ’s earnings to increase over the next year. The company’s 12-month forward PEG (price-to-earnings-growth) ratio stands at 2.4x.
For calculating the forward PE ratio, which represents the company’s potential growth over the next 12 months, the current stock price of a company is divided by its next 12-month earnings estimate. A high forward PE might indicate an overvalued stock or a high-growth company.
The forward PEG ratio takes into account the growth rate of the company and might prove to be a better valuation metric when comparing companies with different growth rates. A comparatively lower PEG ratio indicates an undervalued stock.
Johnson & Johnson’s valuation has increased recently but still remains attractive to many investors looking for further upside based on fundamentals. JNJ is delivering well on its Medical Devices business restructuring efforts and saw improvements in its Pharmaceuticals and Consumer segments in the most recent quarter. (For performance details and growth prospects, read “How Is Johnson & Johnson Positioned after 3Q17?“)
As of January 18, 2018, medical device peers Medtronic (MDT), Zimmer Biomet Holdings (ZBH), and Becton, Dickinson (BDX) have forward PE ratios of 17x, 14.9x, and 20.2x, respectively, and forward PEG ratios of 2.6x, 5x, and 1.3x, respectively.
Notably, JNJ stock makes up ~1.7% of the total holdings of the SPDR S&P 500 ETF (SPY).
JNJ’s fundamentals and growth expectations
Johnson & Johnson is a dividend aristocrat with a strong history of dividends and solid business fundamentals, with an attractive product pipeline and a diversified portfolio.
The company registered some weakness in its sales in recent quarters due to competitive pressures and disruptions in the healthcare industry, but the company appears to have picked up momentum—and looks to be poised for growth going forward.