Johnson & Johnson

Fundamental analysis of Johnson & Johnson, June 30, 2017

Blue picture with red soap bottle icon and text about Johnson & Johnson

 

 

Description:

Johnson & Johnson is an American healthcare company that researches, manufactures and sells various products in the health care field.

 

Valuation:

The company is expensive at a cool 22.4 times trailing earnings. When looking at an average over the past three years’ earnings, the P/E ratio is almost the same at 23.2. Because the company has a lot of intangible assets the Book value is only $7.50 a share which obviously makes the Price to Book value very high.

 

Balance sheet:

The Balance sheet looks very stable with a Working capital of $38.7 bn and a Working capital to Debt ratio of 0.5. The Debt to Equity ratio is 1.0 and its current Return on Equity is 23 per cent which are solid numbers.

 

Free cash flow and dividend:

Johnson & Johnson has a Free cash flow of $15.5 bn which allows it to pay out a dividend of $2.95 which equates to a yield of 2.2 per cent. The company has been paying out uninterrupted and increasing dividends for 25 years.

 

Conclusion:

Johnson & Johnson is a very well run business with steady earnings and a good cash flow. The only problem is the valuation where you are paying too much for what you get. Had the company been 30 per cent cheaper I would be a buyer. Now it’s a HOLD.

 

Update, August 13, 2017

At 22.4 times earnings the Johnson & Johnson stock is too expensive for my taste. In the first quarter they earned $1.61 which allows us to say that they will be making at least $5.50 for the year.

This gives a forward P/E multiple of 24.2 which is way to high for my taste.

Otherwise it’s a well-managed company with solid earnings and a good dividend history.

 

Update, December 12, 2017

Johnson & Johnson have actually been proactive and increased their dividends accordingly as the stock has risen over the few years. Unfortunately the dividend payouts are not grounded on the fundamentals of the stock. Quite on the contrary.

The forward P/E ratio is still very high at 25.7 and earnings multiple over 2016’s earnings is also very high at 23.8.

All that said, there’s nothing wrong with the company’s finacial key data. Debt to equity is 1.0 which seems reasonable, return on equity is 22 per cent and net earnings to sales is 23 per cent which are all good numbers.

Conclusion:

There’s only one thing that is wrong with the company and that is that it is too expensive.

 

 

If you would like to learn more about fundamental analysis you can do that here.

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