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Ukraine – February 5, 2021: A Johnson & Johnson logo is visible on a mobile phone and a computer screen in this photo illustration. According to reports in the media, Johnson & Johnson (J&J) has asked regulators to approve its COVID-19 vaccine for emergency use in the United States and will also apply for approval in the European Union. (Image courtesy of Pavlo Gonchar/SOPA Images/LightRocket/Getty Images)
Getty Images/SOPA Images/LightRocket
We believe that Johnson & Johnson’s (NYSE: JNJ) stock price has room to rise from its current $166 level. JNJ stock is only up 10% from its low point of roughly $150 in mid-February 2020, before the pandemic triggered a sharp stock market correction. When compared to the broader markets, the S&P 500 has increased by 28 percent over the same time period. The impact of the pandemic on all of JNJ’s operations, as well as developments around its Covid-19 vaccine, are principally to blame for the stock’s underperformance. When looking at the stock over a longer length of time, JNJ is only up 29% from its end-of-year levels of roughly $129. (vs. an S&P 500 rise of nearly 72 percent ). Much of this underperformance can be ascribed to the company’s talcum powder litigation, as well as slower revenue-per-share growth. Over the last twelve months, Johnson & Johnson’s total sales increased by only 3.3 percent to $84.3 billion, up from $81.6 billion in 2018. Increased pharmaceutical sales drove the majority of this revenue rise, offsetting a fall in the company’s medical equipment division. Due to share repurchases, the company’s total number of outstanding shares fell by 1.7 percent.
As a result, Johnson & Johnson’s revenue increased 5.1 percent to $31.95 per share in the last twelve months, compared to $30.40 in 2018. Despite a small 5% increase in RPS in recent years, Johnson & Johnson’s P/S multiple has increased by 25% to 5.2x, up from 4.2x in 2018. The underlying numbers may be seen in our dashboard, ‘What Factors Driven a 29 Percent Change In Johnson & Johnson Stock Between 2018 and Now?’

Outlook for Stock Price Trefis
The Covid-19 epidemic has had a greater impact on Johnson & Johnson’s medical devices division than on the company’s other sectors. In 2020, revenue from medical devices fell 12% year over year, compared to 8% and 1% increase in its pharmaceuticals and consumer healthcare businesses, respectively. Hospitals, as well as people who choose to postpone elective surgeries, are mostly to blame. During the pandemic, fewer visits to doctors hurt the company’s pharmaceuticals sector.
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However, because of its single-dose Covid-19 vaccine, which was released in the United States in early March 2021, the stock stayed in the spotlight. While production issues and reports of a few people having catastrophic blood clots after receiving Johnson & Johnson’s Covid-19 vaccination have hampered the vaccine’s launch, the company is making headway, particularly in international markets. However, considering that the company’s Covid-19 vaccine is a not-for-profit product, we don’t anticipate much upside in terms of stock price appreciation, at least during the pandemic.
The medical devices and pharmaceuticals businesses will continue to boost JNJ stock in the future. Given that nearly half of the US population is completely vaccinated and the economy is progressively opening up, the medical device industry is prepared to see a rebound in demand. The overall volume of treatments is projected to climb as people gain confidence in leaving their homes and hospitals are able to deploy resources outside of Covid-19 situations. This element also applies to the medicines division of the corporation. Within pharmaceuticals, we continue to expect that Johnson & Johnson’s products, such as Stelara, Imbruvica, and Darzalex, will enjoy significant improvements.
Between 2017 and 2020, sales of the drug Stelara, which is used to treat plaque psoriasis (psoriatic arthritis), Crohn’s disease, and ulcerative colitis, will have doubled to about $8 billion. Darzalex sales increased 3.4 times over the same time period, indicating even faster growth for its cancer medications. In the foreseeable future, this tendency is projected to continue, strengthening Johnson & Johnson’s total top-line growth. In fact, we expect the company’s revenues to increase by about 11% in 2021, which is significant given the company’s lack of double-digit top-line growth in over a decade.
Looking at the current price of $166, JNJ stock is trading at a P/S multiple of less than 5x its expected RPS of $34.70 in 2021. While the P/S multiple is roughly in line with comparable values for JNJ over the last few years, we anticipate it will climb in the future. This might be ascribed to the company’s pharmaceutical pipeline, which contains numerous potential blockbuster products, which is likely to continue to develop strongly even after 2021.
While JNJ stock may reach higher levels, the year 2020 has created a number of pricing discontinuities that could provide traders with lucrative trading opportunities. For example, the stock valuation for Heico vs AbbVie is quite counter-intuitive.
Here you may find all of Trefis’ Featured Analyses and Trefis Data./nRead More

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