Concerns over record-high inflation, the Federal Reserve’s persistent hawkish stance, geopolitical tensions, and a potential recession have fostered heightened market volatility this year.

Despite various macro headwinds, diversified healthcare company Johnson & Johnson (JNJ) managed to beat top and bottom-line estimates for the third quarter of fiscal 2022. The company’s adjusted operational sales grew 8.2% year-over-year, while its net earnings increased 21.6% year-over-year.

JNJ’s strong financial performance demonstrates its continued strength and resilience across all its business segments. “Looking ahead, I remain confident in our business and ability to continue advancing our innovative portfolio and pipeline,” said Joaquin Duato, JNJ’s CEO.

This month, JNJ and Abiomed Inc. (ABMD), a world leader in breakthrough heart, lung, and kidney support technologies, entered a definitive agreement under which JNJ will acquire all outstanding shares of ABMD for an upfront payment of $380 per share in cash. The transaction is expected to strengthen JNJ’s MedTech business.

“The addition of Abiomed provides a strategic platform to advance breakthrough treatments in cardiovascular disease and helps more patients around the world while driving value for our shareholders,” said Joaquin Duato.

Shares of JNJ have gained 4.4% over the past month and 3.8% over the past year to close the last trading session at $169.25.

Here is what could influence JNJ’s performance in the near term:

Solid Financials

For the fiscal 2022 third quarter ended September 30, 2022, JNJ’s sales increased 1.9% year-over-year to $23.79 billion, beating the consensus estimate of $23.43 billion by 1.5%. The company’s net earnings rose 21.6% from the prior-year quarter to $4.46 billion. Its adjusted EPS of $2.55 has topped the consensus EPS estimate of $2.49 by 2.6%.

Favorable Analyst Estimates

Analysts expect JNJ’s EPS for fiscal 2022 and 2023 to increase 2.5% and 3.2% year-over-year to $10.04 and $10.37, respectively. The company’s revenue for fiscal 2022 and 2023 is expected to increase 1.4% and 2.6% year-over-year to $95.04 billion and $97.55 billion, respectively. 

Moreover, it has surpassed the consensus EPS estimates in each of the trailing four quarters.

Attractive Shareholder Returns

On September 14, JNJ authorized a repurchase of up to $5 billion of its common stock. Joaquin Duato, Chief Executive Officer, said, “With our strong cash flow and lowest level of net debt in five years, we have the ability to invest in innovation, grow our dividend, execute strategic acquisitions, and take this action to deliver shareholder returns and drive long-term growth.”

On October 19, JNJ declared a fourth-quarter dividend of $1.13 per share on its common stock, payable to shareholders on December 6, 2022. Its annual dividend of $4.52 yields 2.67% on the current share price. Its four-year average dividend yield is 2.60%.

JNJ’s dividend payouts have increased at a 5.8% CAGR over the past three years and a 6% CAGR over the past five years. The company has a record of 59 years of consecutive dividend growth.

High Profitability

JNJ’s trailing-12-month gross profit margin of 67.52% is 24.3% higher than the 54.31% industry average. Its trailing-12-month EBITDA margin of 33.37% is 996% higher than the 3.04% industry average. Also, the stock’s trailing-12-month net income margin of 19.95% compares to the industry average of negative 5.84%.

Moreover, JNJ’s trailing-12-month levered FCF margin of 18.66% compares to the industry average of negative 2.35%. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 26.45%, 26.45%, and 14.81% compare to the industry averages of negative 38.67%, 21.39%, and 30.70%, respectively.

POWR Ratings Reflect Promising Prospects

JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. JNJ has a Stability grade of A, in sync with its two-year beta of 0.40. In addition, the stock has a B grade for Quality, consistent with its higher-than-industry profitability metrics.

In the 162-stock Medical – Pharmaceuticals industry, it is ranked #8.

Click here to see the additional POWR Ratings for JNJ (Growth, Value, Momentum, and Sentiment).

View all the top stocks in the Medical – Pharmaceuticals industry here.

Bottom Line

JNJ has survived through the dynamic macroeconomic environment, evident from its stable revenues and earnings streams. Moreover, the company seems well-positioned to deliver transformative healthcare solutions, driven by strategic acquisitions and its diversified portfolio and pipeline.

The company has also been able to pay increasing dividends to its shareholders for 59 consecutive years. Given its solid financials, high profitability, and attractive dividends, we think it could be an ideal investment amid the current volatile market conditions.

How Does Johnson & Johnson (JNJ) Stack up Against Its Peers?

While JNJ has an overall POWR Rating of A, one might consider looking at its industry peers, Pfizer Inc. (PFE), Novo Nordisk A/S ADR (NVO), and Bristol-Myers Squibb Co. (BMY), which also have an overall A (Strong Buy) rating.

JNJ shares were trading at $173.07 per share on Monday afternoon, up $3.82 (+2.26%). Year-to-date, JNJ has gained 3.16%, versus a -15.07% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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