Johnson & Johnson shares hit a high: Should we invest in the US healthcare giant? Photo: Adobe Srock
With a current market capitalization of $458 billion, the American group Johnson & Johnson is among the ten largest companies in the world.
Johnson & Johnson is a global leader in pharmaceutical, medical and surgical instruments, not to mention mass-market hygiene and beauty products.
Read our analysis of Johnson & Johnson: its profile, current share price, its successes, and its products.
Finally, we will ask ourselves whether it might be interesting to invest in the Johnson & Johnson stock market.
Infographic: key figures of the Johnson & Johnson group
Infographic: key figures of the Johnson & Johnson group
$460 billion: market capitalization as of July 18, 2022
$20.9 billion: Johnson & Johnson Group’s 2021 revenue
Top 10 biggest groups in the world
2.4%: current dividend yield
1886: The year Johnson & Johnson Group was founded
Johnson & Johnson: the world’s No. 1 in health care
The beginnings of Johnson & Johnson
The history of Johnson & Johnson begins 130 years ago thanks to the surgical antiseptics created as a result of the work of Joseph Lister. Thus, in 1885, Robert Wood Johnson and his two brothers had the idea of developing sterile surgical bandages. This was the beginning of Johnson & Johnson’s success, a success that continued with the launch of a range of baby powders developed back in 1893.
Since the beginning of the 20th century, Johnson & Johnson has known how to come to the aid of the population during important events in history: during the First World War, Johnson & Johnson provided soldiers with first aid supplies, and in 1918, during the great Spanish flu pandemic, Johnson & Johnson produces a large number of protective masks.
These two events were just a few examples of Johnson & Johnson’s success over the past 130 years.
Johnson & Johnson today
With sales of $93.8 billion in 2021 and profits of $20.88 billion, the Johnson & Johnson empire is present in most countries around the world.
Its turnover in 2021 is distributed as follows:
• 47.2 billion US dollars (50.31%);
• $23.6 billion in Europe (25.16%);
• $17.3 billion in Asia/Pacific (18.44%);
• $5.7 billion. USA in the rest of the world (6.07%).
3 segments of the Johnson & Johnson group
Pharmaceuticals: $52.08 billion in sales in 2021 (55%)
Together with its subsidiary Janssen, the Johnson & Johnson group develops and markets medicines and vaccines related to the main pathologies: immunology, vaccines (in particular related to Covid-19), infectious diseases, neurosciences; oncology; hematology; pulmonary hypertension; cardiovascular and metabolic diseases.
Consumer Health: Revenue in 2021 was $14.64 billion (16%)
In this segment, Johnson & Johnson develops and distributes consumer health and beauty products such as: feminine hygiene, first aid products (bandages, disinfectants, etc.), oral care and cosmetics.
Medical products: $27.06 billion in sales in 2021 (29%)
Johnson & Johnson Medtech develops and markets surgical products for hospitals. The means of general and orthopedic surgery deserve special attention. The group also specializes in devices for the treatment of cardiac arrhythmias, strokes and neurovascular pathologies.
Johnson & Johnson Medtech also develops programs for eye health.
Financial results of Johnson & Johnson
Johnson & Johnson 10-Year Revenue Chart ($Billion)
Over the past 10 years, Johnson & Johnson’s turnover has fluctuated between $67.2 and $93.8 billion. Between 2012 and 2021, it is generally on an upward trend, rising from US$67.2 billion in 2012 to US$93.8 billion in 2021, a growth of +40% in 10 years.
Johnson & Johnson 10-Year Revenue Chart ($Billions)
Over the past 10 years, Johnson & Johnson’s net income has grown from $10.9 billion in 2012 to $20.9 billion in 2021, a +92% increase over 10 years.
In 2017 alone, profits fell to US$1.3 billion, a result that is explained by a high income tax provision of US$16.37 billion, but does not call into question the efficiency of the group.
Johnson & Johnson’s results for the first half of 2022
Results for Q2 2022 and H1 2022 were published on July 19, 2022. It shows revenue growth of +4%, but a decrease in net profit:
• $45.63 billion versus $47.45 billion in revenue between the first half of 2021 and the first half of 2022 (+4.0%);
• $12.75 billion versus $9.96 billion in net income between the first half of 2021 and the first half of 2022 (-20.1%).
This decrease in net profit for the first half of 2022 is not related to a decrease in the operating efficiency of the Johnson & Johnson group, but is mainly explained by the line item in the income statement “Other (income) expenses” and expenses) which received an exceptional profit for the first half of 2021.
Also note the $593 million increase in research and development between the first half of 2021 and the first half of 2022.
Johnson & Johnson Dividends
Johnson & Johnson 10-Year Dividend Chart ($ per share, ex-date saved)
Johnson & Johnson is on the list of America’s 65 Dividend Aristocrats.
Johnson & Johnson’s dividend increased from $2.40 per share in 2012 to $4.19 per share in 2021, representing +74.6% growth.
Johnson & Johnson stock is currently yielding 2.40% with a price of $174.23 on July 18, 2022.
Johnson & Johnson shares: analysis of financial results and evaluation of the stock market
Johnson & Johnson: Our study of financial performance
As of July 18, 2022, Johnson & Johnson presents the following figures at the current share price of $174.23:
• EPS (earnings per share) in 2021 is set at $7.93.
• equity capital of $74.02 billion, which is significantly lower than the current market capitalization of $458 billion;
• a reasonable financial debt to equity ratio of 0.46.
Graphical analysis of Johnson & Johnson’s share price on the stock market in the long term
Johnson & Johnson stock price chart for 20 years
From the beginning of 2000 to the end of 2012, the price of Johnson & Johnson shares increased from $48.5 to $71.6 (+48%), and then strengthened its growth and in mid-July 2022 was set at $174.2.
With the exception of several rallies in 2009, 2015, 2018 and 2020, the megatrend for Johnson & Johnson stock is clearly positive. Additionally, Johnson & Johnson stock is currently close to its all-time high reached on April 25, 2022 at $186.
Should you invest in the Johnson & Johnson stock market?
The Johnson & Johnson group has impressive sales margins for a mature group of its size operating in the consumer goods sector:
• 22.3% in 2021;
• 17.8% in 2020;
• 18.4% in 2019;
• 18.8% in 2018.
As such, its ability to generate income is undeniable and can even be described as a rarity among large mature groups related to “consumer consumption” (excluding the technology, growth and GAFAM segments).
Things get more complicated when you look at Johnson & Johnson’s $460 billion market capitalization. Johnson & Johnson’s PER is now 27.9 (average of last 4 years). In other words, an investor currently interested in Johnson & Johnson stock is paying the stock market for nearly 30 years worth of annual earnings. This ratio looks too high, even considering Johnson & Johnson’s EPS (earnings per share) growth of +10% per year (10-year average, uncapitalized).
By comparison, and to give examples of large French groups known to the general public, a few months ago names known among the world leaders in their sectors, such as AXA and TotalEnergies, could still be purchased at PER levels of less than 10 .
The same observation about Johnson & Johnson’s dividend yield: at less than 2.5%, that seems a little low to us for an investment approach based on dividend yield.
Despite Johnson & Johnson Group’s excellent earnings performance, Johnson & Johnson stock currently seems overvalued to us.
Also find this article on the Café de la Bourse website