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Johnson & Johnson (JNJ) Stock Analysis
Johnson & Johnson (JNJ) Dividend
The Johnson & Johnson (JNJ) dividend has been paid continuously since 1944 and increased for 62 consecutive years; qualifying the company as a Dividend King, Dividend Aristocrat, and Dividend Champion.
Current Dividend Annualized: $4.96
Johnson & Johnson (JNJ) Intrinsic Value – Margin of Safety Analysis
(updated November 2024)
Normalized Diluted Earnings Per Share (TTM): $6.05
Free Cash Flow Per Share (TTM): $7.83
Cash Flow From Operations (CFO) Per Share (TTM): $10.35
Estimated Intrinsic Value: $143
Target Buy Price Based on Required Margin of Safety = $143
(Required Margin of Safety Based On Risk Stability Grade:
A = 0%, B = 20%, C = 40%, D = 60%, F = 80%)
Target SELL Price Based on Estimated Intrinsic Value = $200
(Allow Overvaluation Adjusted by Risk Stability Grade:
A+ = 40%, A = 25%, B = 15%, C = 10%, D = 5%, F = 0%)
Risk / Stability Grade: A
A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.
B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.
C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.
D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.
F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.
Financial Risk Grade: A
A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.
B grade indicates a very low probability for a dividend cut.
C grade indicates a low probability for a dividend cut and/or average safety risk.
D grade indicates there are issues that should be considered concerning future dividend payments.
F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.
Business Quality Grade: B
A grade indicates earnings quality is high or far above average.
B grade indicates earnings quality is good and/or above average.
C grade indicates earnings quality is acceptable or average.
D grade indicates earnings quality is poor and requires thoughtful due diligence.
F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.
Earnings Report: 9/30/24
AAAMP Portfolios Position Disclosures:
Treasure Trove Dividend (TTD) – LONG
Global Dividend Value (GDV) – LONG
Dividend Growth & Income (DGI) – LONG
Global Value (GV) – None
Global Value Aggressive (GVA) – None
Global Conservative Income (GCI) – LONG
Global Aggressive Income (GAI) – None
Company Description
Sector: Healthcare
Industry: Drug Manufacturers – Major
Note: In 2023 Johnson & Johnson split off to shareholders its consumer healthcare unit trading as Kenvue (KVUE). Kenvue is touted as the “world’s largest pure-play consumer health company” with popular brands such as Neutrogena, Tylenol, Band-Aid, Listerine, and Johnson’s Baby Shampoo. After the split, JNJ gives shareholders a more targeted exposure to medical device and pharmaceuticals.
Johnson & Johnson is the world’s largest and most diverse healthcare company. Three divisions make up the firm: pharmaceutical, medical devices and diagnostics.
The drug and device groups represent close to 80% of sales and drive the majority of cash flows for the firm. The drug division focuses on the following therapeutic areas: immunology, oncology, neurology, pulmonary, cardiology, and metabolic diseases.
The device segment focuses on orthopedics, surgery tools, vision care, and a few smaller areas. The last segment of consumer focuses on baby care, beauty, oral care, over-the-counter drugs, and women’s health.
Geographically, just over half of total revenue is generated in the United States.
SWOT Analysis
Strengths
Johnson & Johnson is one of the most trusted brands in the world. It it one of the most consistent earnings grower in history. The 3 healthcare segments provide diversity and unparalleled breadth of quality products for the healthcare industry. Their research pipeline is producing next generation products. In addition, the company has a sales and distribution network that provides JNJ protection from competitors (moat).
Weaknesses
Litigation surrounding several J&J products have the potential to blemish the company’s stellar reputation and cost billions of dollars. This is part of the price a company pays for having so many products.
Such a gigantic organization requires attention to quality and details to operations that are easily forgotten in a large company. To keep competitive advantages JNJ has to stay focused on the things that have made them the best.
Opportunities
Developed nations have populations whose average age is increasing rapidly. Older people consume 7 times as much healthcare as young people. In addition, the growing global middle-class will be consuming an increasing amounts of healthcare.
These trends are a huge positive for companies such as JNJ that are positioned to provide access to quality healthcare products and meet the needs of these growing populations.
Threats
The largest threat to the healthcare industry is the uncertainty tied to increased scrutiny from consumers and government. Plans for more government run healthcare and regulation make it more difficult to make long term investments, increase the risk of higher litigation costs, and possibly decrease profit margins.
A reduction in pricing power can be expected due to the changing environment. Pharmacy Benefit Managers and government are each putting public and private pressure on reducing profit margins.
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Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.