Why Johnson & Johnson Stock is attractive now

Due to the current market turmoil, Johnson & Johnson (JNJ) shares are down nearly 9% from their April 25 high, when the stock neared $185.

However, the downturn has created a great opportunity to add more shares to any position in this global pharmaceutical industry leader. My position on Johnson & Johnson is bullish.

About Johnson & Johnson

Johnson & Johnson has been in the pharmaceutical industry for over a century, developing and marketing a wide range of pharmaceutical, personal care and hygiene products and devices.

The company’s headquarters are located in New Brunswick, New Jersey.

Small price, but for how long?

Any news of the resurgence of the COVID-19 virus is sure to send Johnson & Johnson stocks skyrocketing as the US pharmaceutical giant is the maker of one of the most injected vaccines against the infection.

Many believe the problem is solved simply because daily infections and transmission rates are not alarming. The situation in health establishments in Western countries is currently calm in terms of hospitalization and resuscitation. As for China, things are slowly returning to normal after a period of strict lockdown and other restrictions imposed in several urban areas.

In reality, however, the virus remains a major concern, albeit in different variants called BA.4 and BA.5. These seem to be less aggressive than previous strains, but with the coronavirus things can suddenly get worse.

A small spark is enough to light the fuse and bring us back to where we were a few months ago. Governments could then reintroduce restrictions to curb the spread of the virus, and the population would again undergo a full vaccination course.

There is a good chance that this scenario will occur in late summer or early fall.

In many countries, the calendar year is heading towards its warmest period, which would harm the virus if it were to cause seasonal flu, which peaks in winter, but things are a little different with the COVID-19 virus. . The infection tends to kick in when temperatures rise.

Hot weather and people traveling in droves increase the risk of transmission since social distancing is no longer mandatory and people no longer have to wear face masks.

Vaccine suitable for COVID-19 sought

The risk is already felt by politicians. On June 14, EU Health Commissioner Stella Kyriakides said via Twitter (TWTR) that the pandemic is not over and that we must prepare in the coming months with a sufficient number of vaccines, including those adapted to the variants.

The need to arm healthcare providers with a bespoke product will likely prompt the U.S. drugmaker to re-advise shareholders on guidelines for COVID-19 vaccine sales. The company discontinued this type of advice due to an oversupply of the product in the market.

If the COVID-19 virus were to replicate globally, Johnson & Johnson could see a sharp rise in its share price as does its COVID-19 vaccine (Ad26.COV2.S), along with Pfizer Inc. (DFP) and Moderna, Inc. (mRNA), the vaccine most commonly injected during vaccination campaigns.

Further dividend increases expected

Buying Johnson & Johnson stock today can guarantee a dividend yield of over 2.66% (at the time of writing), which is already significantly above the market average. The S&P 500 (SPX) currently offers a dividend yield of around 1.4%.

The US drug giant is funding a quarterly dividend payment of $1.13 per common share with a strong balance sheet. As of April 2, 2022, the company had a total of $30.4 billion in cash and short-term securities against a total debt of $33.2 billion.

The interest coverage ratio of 193.4 (calculated as earnings before interest and tax (EBIT) divided by total interest expense on all outstanding debt) determines that the US drugmaker has more ease of paying the interest charges due on the outstanding debt.

Ideally, anything above 1.5 indicates creditworthiness, while anything below could mean the business is struggling to please lenders.

Additionally, the company is not heavily dependent on debt, as evidenced by its debt-to-equity ratio of just 0.44. Plus, it can pay it all back through earnings before interest, taxes, depreciation, and amortization (EBITDA) in just 12 months, as evidenced by the debt-to-EBITDA ratio of 1.09.

Thus, shareholders should not worry about the financial health of Johnson & Johnson, which also relies on strong operations. These generated net revenue of approximately $7.13 billion (up 3% year-over-year) in the first quarter of 2022 on total revenue of approximately 23.43 billions of dollars.

Revenue rose nearly 5% year-over-year, reflecting a 6.3% year-over-year jump in the pharmaceuticals segment to $12.87 billion and an increase of nearly 6% year over year in the MedTech segment to $6.97 billion.

These two increases offset a slight decline of 1.5% in the consumer healthcare segment, which recorded revenue of approximately $3.59 billion in the first quarter of 2022.

For the full year 2022, the company expects EPS of $10.15 to $10.35, up from $9.8 a year ago and above analysts’ median estimate of $10.27.

This level of earnings is more than double the annualized dividend of $4.52, leaving ample room for further dividend increases. Despite strong headwinds in the market, the company increased its dividend by 4.95% last year, demonstrating the robustness of its business.

If the company increases the dividend again, which is entirely possible, the stock price could receive a strong boost to higher levels.

The Taking of Wall Street

Over the past three months, 10 Wall Street analysts have released a 12-month price target for JNJ. The stock has a moderate buy consensus rating based on six buy, three hold and zero sell ratings.

Johnson & Johnson’s average price target is $194.89, implying 14.5% upside potential.

Evaluation

The shares are changing hands at $170.08 at the time of writing for a market cap of $447.5 billion, a price-to-earnings ratio of 22.9 and a price-to-sales ratio of 4.8.

The stock price has fluctuated between a low of $155.72 and a high of $186.69 over the past 52 weeks.

Perhaps these ratios don’t give a clear idea of ​​the attractiveness of the current stock price, as do the 50-day moving average of $178.56 and the 200-day moving average of $169.93. .

From this comparison, it is crystal clear that these stock price levels could be one of the last chances to enter this stock before the strong tailwind expected from a possible resurgence of the COVID-19 virus is only triggering rapid acceleration for the US drugmaker. .

Conclusion

The stock is trading significantly lower than a few weeks ago, after falling significantly from its all-time high on April 25.

Due to an expected resurgence of the COVID-19 virus around the world, the stock price could rally sharply as Johnson & Johnson produces one of the most widely used coronavirus vaccines.

The market now offers the opportunity to lock in a very good dividend yield.

Disclosure

About Barbara J. Ross

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