This year, sky-high inflation and the Federal Reserve’s attempts to tame it have caused significant market volatility. The central bank is expected to raise interest rates again this month by 0.5 percentage points.
Well-established and financially sound companies, called “blue chips,” weather a market downturn better than smaller companies, making them solid picks in the face of market volatility. As the economy is expected to witness a recession next year, investing in shares of blue-chip company Johnson & Johnson (JNJ) could be safe.
The company surpassed top and bottom-line estimates in the third quarter. Its adjusted EPS of $2.55 and sales of $23.79 billion topped the consensus estimates by 2.6% and 1.5%, respectively.
Moreover, last month, JNJ entered into a definitive agreement with Abiomed Inc. (ABMD) to acquire all outstanding shares of ABMD for an enterprise value of approximately $16.60 billion.
The stock has gained 7.5% over the past year and 7.4% over the past three months. It is up 5.1% over the past month to close its last trading session at $177.84. It is trading higher than its 50-day moving average of $171.48 and 200-day moving average of 172.98, indicating an uptrend.
Here are the factors that could influence JNJ’s performance in the upcoming months:
Discounted Valuation
In terms of its forward P/E, JNJ is trading at 22.13x, 12% lower than the industry average of 25.15x, while its forward non-GAAP P/E multiple of 17.49 is 9.5% lower than the industry average of 19.33.
In terms of forward EV/EBIT, the stock is trading at 15.45x, 11.2% lower than the industry average of 17.39x. Its forward Price/Cash Flow multiple of 16.33 is 4% lower than the industry average of 17.01.
Robust Profitability
JNJ’s trailing-12-month gross profit margin and EBITDA margin of 67.52% and 33.33% are 22.1% and 794.7% higher than the industry averages of 55.29% and 3.73%, respectively.
Its trailing-12-month ROCE, ROTC, and ROTA of 26.45%, 14.81%, and 10.94% compare with their respective industry averages of negative 39.69%, 21.95%, and 31.22%.
Attractive Dividend
On October 19, JNJ declared a dividend of $1.13 per share for the fourth quarter of 2022 on its common stock, which was payable on December 6, 2022. The $4.52 annual dividend yields 2.54% on the current share price. It has a four-year average yield of 2.60%.
The company’s dividend payouts have increased at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years. JNJ has a record of 60 years of consecutive dividend growth.
POWR Ratings Reflect Promising Prospects
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. JNJ has a Stability grade of A, in sync with its five-year beta of 0.57.
The stock also has a B grade for Value and Quality, consistent with its cheap valuation multiples and solid profitability.
In the 160-stock Medical – Pharmaceuticals industry, it is ranked #6.
Click here to see the additional POWR Ratings for JNJ (Growth, Momentum, and Sentiment).
View all the top stocks in the Medical – Pharmaceuticals industry here.
Bottom Line
Despite macroeconomic uncertainties, JNJ has managed to beat the consensus earnings estimate. Moreover, the stock’s robust profitability looks promising. Given its long history of dividend payments, underscoring its financial resilience, JNJ might be a solid buy for the long term.
How Does Johnson & Johnson (JNJ) Stack up Against Its Peers?
While JNJ has an overall POWR Rating of A, one might consider looking at its industry peers, Novo Nordisk A/S (NVO), Pfizer Inc. (PFE), and Bristol-Myers Squibb Company (BMY), which also have an overall A (Strong Buy) rating.
JNJ shares rose $1.26 (+0.71%) in premarket trading Tuesday. Year-to-date, JNJ has gained 7.34%, versus a -12.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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