Johnson & Johnson’s valuation
Johnson & Johnson (JNJ) is one of the largest pharmaceutical companies by revenue. Its products are classified into three business segments: Consumer, Pharmaceutical, and Medical Devices. The company reported revenues of ~$20.2 billion in 4Q17, an 11.5% growth compared to 4Q16. It reported EPS (earnings per share) of $1.74 in 4Q17.
The above chart compares Johnson & Johnson’s revenues and EPS since 1Q16. Let’s take a look at its valuation multiples.
A price-to-earnings (or PE) multiple represents what one share can buy for an equity investor. As of February 27, 2018, Johnson & Johnson was trading at a forward PE multiple of ~16.2x compared to the industry average of 15.5x. Its competitors Merck & Co. (MRK) and Eli Lilly (LLY) are trading at lower forward PE multiples of 13.1x and 15.9x, respectively. Bristol-Myers Squibb (BMY) is trading at a higher forward PE multiple of 20.1x.
On a capital-structure-neutral basis, Johnson & Johnson trades at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~12.2x compared to the industry average of ~14.0x as of February 27, 2018. Merck & Co. (MRK) is trading at a lower forward EV-to-EBITDA multiple of 10.8x, while Eli Lilly (LLY) and Bristol-Myers Squibb (BMY) are trading at higher forward EV-to-EBITDA multiples of 12.7x and 17.4x, respectively.
The Health Care Select Sector SPDR ETF (XLV) holds ~10.9% of its total investments in Johnson & Johnson (JNJ), 4.7% in Merck & Co. (MRK), 2.3% in Eli Lilly (LLY), and 3.4% in Bristol-Myers Squibb (BMY).