Summary
- Johnson & Johnson & Johnson's current low share price reflects fear in the market of large opioid-related claims.
- These claims are highly manageable from a financial perspective.
- It's rare to see a quality dividend-paying stock trading around the 15.0 P/E mark today. Load up now or wait for an even lower price.
- Not sure what price to pay? Learn how to determine a Johnson & Johnson share buy price that has the potential to meet your personal investment goals.
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Johnson & Johnson: Investment Thesis
The Opioid Threat Is Highly Manageable From A Financial Perspective
- Johnson & Johnson (NYSE:JNJ) is currently trading at an adjusted non-GAAP P/E ratio of 15.04, with net debt of $15 billion and debt to debt+equity ratio of 20%.
- The low P/E ratio reflects fear in the market of large opioid related claims.
- To gain perspective, Coca-Cola (NYSE:KO) is currently trading at an adjusted non-GAAP P/E ratio of 25.6, with net debt of $33 billion and a debt to debt+equity ratio of 62%.
- If Johnson & Johnson were to borrow $18 billion tomorrow and pay this out to settle all opioid and other claims, its debt to debt+equity ratio would increase to 44%.
- It's rare to see a quality dividend paying stock trading around the 15.0 P/E mark today. Load up now or wait for an even lower price.
The Potential Returns Outweigh The Highly Manageable Risks
Based on current share price of $129.67, and on analysts' consensus estimates, and assuming recovery of the P/E ratio to 18.00, Johnson & Johnson is indicated to provide double-digit rates of return over the next five years. Share price movements over the past three years suggest the current share price is presently in the lower range of a fluctuating share price. Stress testing suggests even if the share price remained flat at the current level over the next five years, an increasing dividend could result in average yearly rates of return in excess of 3% if shares bought now were held through end of 2023. Johnson & Johnson shares have at times been likened to a bond proxy. If thought of in that light, Johnson & Johnson shares could be seen as an alternative to holding cash or Treasuries in the event of a market crash. At the same time, there's considerable upside potential, and double-digit returns, if the wider market does not suffer a lasting setback impacting all stocks.
Empowering Investors To Make Informed Decisions.
Seeking Alpha's mission is "to empower investors to make informed decisions." Here at Analysts' Corner, we believe demystifying the financial statements of corporations is a good start to the empowering process. Forget arguments on whether company performance should be judged on free cash flow, earnings per share, or other performance measures. Knowledgeable investors may support one over the other, but always with the qualification, these measures should not be used in isolation when making investment decisions. In this article, I hope to show how targeting a desired return on an investment in shares can be facilitated by actually estimating what future returns will be based primarily on analysts' EPS estimates and other publicly available data.
First, I provide details of actual rates of return for Johnson & Johnson shareholders investing in the company over the last four to five years.
