Johnson & Johnson

Johnson & Johnson (NYSE: JNJ) is the leading and most diverse healthcare company. The company is divided into three divisions: pharmaceuticals, medical equipment and diagnostics, and consumer goods. The United States accounts for slightly more than half of total sales.

Why should investors Book Profits?

• Macro headwinds: Recent discussions in the market about raising interest rates sooner to combat inflation will put pressure on the company to increase short-term borrowing for working capital unless organic cash generated from normal business operations is sufficient. This is a short-term barrier, making it less appealing to investors.
• Relatively Operating at Low Margins: The company is operating at a gross margin of 65.2% in FY21 compared to the industry median of 71.6%. Its gross margin has been falling continuously from 66.9% in FY18 to 65.2% in FY21, indicating a gradual rise in the cost of sales.
• Technical Weakness: On the daily price chart, JNJ stock is encountering critical resistance near 174.48, which comes after a solid share gain over the last few trading sessions. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 60.19, approaching the overbought zone. 

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

JNJ's stock price has remained stable throughout the year and has risen only 7.64% in the past twelve months. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 160.35. Considering the macro headwinds, continuous decline in margins, and other technical indicators, we recommend to 'Sell' the stock at the closing price of USD 172.76, down 0.0058% as of February 03, 2022.

3-Year Technical Price Chart (as of February 03, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Disclaimer

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