Target Price: $123.78
Stop Loss: $83.31
52 Week High/ Low: $81.79-105.49 / TTM P/E: 19.01
Forward P/E: 14.95
EPS: 5.48 / Beta: 0.58
Credit Rating:A++
Rating Outlook: / Market Cap: $288.15B
Avg Vol (12 Month): 15.42M
Dividend Yield: 3%
Company Background:
Johnson & Johnson is engaged in the research & development, manufacture, and sale of a broad range of products in the healthcare field. Has three business segments: Consumer-24% (baby care, skin care, oral care, wound care, etc.), Pharmaceutical-36% (anti-infective, antipsychotic, contraceptive, dermatology, gastrointestinal, etc.), and Medical Devices & Diagnostics-40% (electrophysiology, circulatory disease management, orthopedic joint reconstruction, etc.).
55% from non US Market.
Industry Outlook:
- The 4.3% increase for the health care sector outperformed the 1.0% increase in the S&P 1500, with the S&P 500 biotechnology, life sciences tools & services, and pharmaceuticals sub-industries generating 3.0%, 11.3%, and 2.6% gains, respectively.
- Top-line pressure from patent expirations on many top-selling drugs will bottom in 2015 and we anticipate sale increases in 2016.
- In 2014, the S&P Pharmaceuticals Index rose 19.3%, versus a 10.9% gain in the S&P 1500 Composite Index. Year-to-date through October 9, 2015 the S&P Pharmaceutical Index fell 1.4% vs. a 2.0% decline in the S&P 1500 Composite Index.
Investment Thesis:
- Management recently announced a $10 billion share-repurchase program that should provide a 3.5% bump to the bottom line
- the company released guidance, stating that it is expecting to generate between $6.43 and $6.58 in earnings per share throughout the year 2016.
- the sheer size of the product offering at Johnson & Johnson
- Johnson & Johnson forms about 10.4% of the total assets of the Health Care Select Sector SPDR ETF
Investment Risks:
- Intensified pricing pressures.
- The strong U.S. dollar continues to restrain Johnson & Johnson’s top line.
3-5 take away from last quarter investor call transcript:
- On an operational basis sales were up 4.4% and currency had a negative impact of 6.8%
- Net earnings were $3.2 billion and diluted earnings per share were $1.15, versus $0.89 a year ago
- On an annual basis sales grew 1.8% operationally and currency had a negative impact of 7.5%
- Worldwide Consumer segment sales of $3.3 billion increased 1.8% with U.S. sales down 4.9%, worldwide pharmaceutical sales of $8.1 billion increased 6.5% with U.S. sales up 12.7% andworldwide Medical Devices segment sales of $6.4 billion increased 3.4%. U.S. sales increased 6.7%
Financial Performance: / Discounted Cash Flow
/ 2010-14 / 2015-19
Avg Revenue growth / 3% / 3%
Avg EBITDA Margin / 29% / 34%
Avg NOPAT / 21% / 24%
Avg FCF/Margin / 23% / 26%
Cost of Debt / 1.3%
Tax Rate / 20%
Cost of Equity / 8.9%
WACC / 8.3%
Perpetuity Growth Rate (Terminal) / 2.3%
Analyst Opinion
Buy: 11 / Hold: 9 / Sell: 1
Rating / Target
S&P Net Advantage / 4 Star / $120
Morning Star
Value Line / Timeliness2 / $115-140
Relative Valuation / Total Return
FY2014 / PFIZER INC / BRISTOL-MYERS SQUIBB CO / ABBVIE INC / Industry / JOHNSON & JOHNSON
P/E / 16.83 / 31.75 / 13.83 / 20.81 / 17.85
P/B / 2.74 / 6.62 / 19.11 / 9.49 / 4.03
Dividend Yield / 3.77 / 2.48 / 3.59 / 3.28 / 3.0
PEG Ratio / 2.38 / 1.19 / 1.03 / 1.54 / 2.64
EPS / 0.10 / -0.08 / 0.92 / 0.31 / 1.15
Rev Growth (1 Yr) / 7.08 / 0.68 / 17.39 / 8.38 / -2.43
NI Growth (1 Yrs) / 4.36 / -3.22 / 23.70 / 8.28 / 18.05
Operating Margin / 13.07 / -1.91 / 33.02 / 14.72 / 17.79
Debt / Equity / 27.17 / -18.11 / 470.45 / 85.26 / -24.54
Market Cap / 183152.97 / 100297.37 / 92919.01 / 125456.45 / 288149.51
Sources: Bloomberg, S&P NetAdvantage, VLIS, Morningstar / JNJ / Sector / S&P 500
YTD / 0.67% / -5.88% / -6.78%
Last 3 Years / 14.62% / 9.49% / 10.22%
Last 5 Years / 13.93% / 13.02% / 10.17%
CSR Characteristics
JNJ / Industry
ESG Disclosure Score / 57.02 / 48.28
Governance Disclosure Score / 57.14 / 60.12
Social Disclosure Score / 49.12 / 42.40
Environmental Disclosure Score / 60.47 / 45.74
Prepared By: AkhilSood, 02/03/2016f