Is Johnson & Johnson (JNJ) Still Attractive After Strong 1-Year Share Price Performance?

• If you are wondering whether Johnson & Johnson is priced for perfection or still offers value, its recent share performance gives you plenty to think about.
• The stock last closed at US$244.12, with returns of 1.7% over 7 days, a 1.8% decline over 30 days, 17.7% year to date, and 61.5% over 1 year.
• Recent news coverage has focused on Johnson & Johnson as a large, diversified healthcare name that continues to attract attention from investors looking for stability and income. Commentary has also highlighted its role in the pharmaceuticals and biotechnology space as investors reassess risk in the wider market.
• Johnson & Johnson currently has a valuation score of 4 out of 6. The sections that follow will compare different valuation methods, and then conclude with a perspective that can help you think about value in a more complete way.

Johnson & Johnson delivered 61.5% returns over the last year. See how this stacks up to the rest of the Pharmaceuticals industry.

Approach 1: Johnson & Johnson Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today’s value.

For Johnson & Johnson, the latest twelve month Free Cash Flow is about $19.7b. Analysts and model projections suggest Free Cash Flow of $34.6b in 2030, with intermediate yearly estimates and then extrapolated figures beyond the analyst horizon. All cash flows are assessed in dollars, using a 2 Stage Free Cash Flow to Equity model that first applies explicit projections and then a longer term phase.

Based on these cash flow projections, the model arrives at an estimated intrinsic value of about $363.44 per share. Compared with the recent share price of $244.12, the DCF indicates an intrinsic discount of 32.8%, which suggests that the stock appears undervalued on this measure.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Johnson & Johnson is undervalued by 32.8%. Track this in your watchlist or portfolio, or discover 63 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Johnson & Johnson.

Approach 2: Johnson & Johnson Price vs Earnings

For a profitable company like Johnson & Johnson, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. It ties directly to the business’s profitability, which is usually more stable than sales or book value for mature healthcare names.

What counts as a “normal” or “fair” P/E depends on what the market expects for future earnings growth and how risky those earnings appear. Higher expected growth or lower perceived risk can justify a higher P/E, while lower growth or higher risk tends to support a lower P/E.

Johnson & Johnson currently trades on a P/E of 21.94x. That is above the Pharmaceuticals industry average P/E of 16.79x, but below the peer group average of 24.15x. Simply Wall St’s Fair Ratio for Johnson & Johnson is 27.16x, which is its proprietary estimate of an appropriate P/E given the company’s earnings profile, margins, industry, market value and risk characteristics.

The Fair Ratio aims to be more tailored than a simple comparison with peers or industry averages because it considers multiple company specific drivers rather than just grouping Johnson & Johnson with broad sector data.

Since the Fair Ratio of 27.16x is higher than the current P/E of 21.94x, this multiple based view suggests the shares may be trading below that indicated level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Johnson & Johnson Narrative

Earlier it was mentioned that there is an even better way to think about valuation, and on Simply Wall St that takes the form of Narratives, where you set out your story for Johnson & Johnson, link it to specific assumptions for future revenue, earnings and margins, and get a Fair Value that you can compare directly with today’s price.

A Narrative is essentially your investment story written into numbers. Instead of only looking at a single DCF or P/E, you combine your view of the business with a forecast and see what that implies for Fair Value, then track how that relationship changes over time.

On Simply Wall St’s Community page, millions of investors use Narratives as an accessible tool, updating them when new earnings, product news or litigation headlines arrive. This means the Fair Value view refreshes automatically as the inputs change.

For Johnson & Johnson, one Narrative currently assumes a Fair Value of about US$133.00 while another is closer to US$265.00. This shows how different views on growth, margins, risks and appropriate future P/E can all be expressed as distinct stories and then compared side by side to help you judge how the current price lines up with the Narrative you find most reasonable.

For Johnson & Johnson however we’ll make it really easy for you with previews of two leading Johnson & Johnson Narratives:

🐂 Johnson & Johnson Bull Case

Fair Value: US$265.00 per share

Implied discount to this Fair Value relative to the last close of US$244.12: about 7.9%

Revenue growth assumption: 7.10% a year

• Backs a broad set of 28 revenue platforms and multiple US$1b plus products across Oncology, Immunology, Neuroscience, Cardiovascular, Surgery and Vision, rather than a single flagship drug.
• Builds in heavy spending on R&D and acquisitions, a deep late stage pipeline and complex therapies in areas of high medical need, with the aim of supporting future revenue and margins.
• Accepts meaningful risks around patent expiries, pricing pressure, legal exposures and large acquisitions, yet still supports a Fair Value of US$265.00 based on bullish analyst forecasts and a higher future P/E.

🐻 Johnson & Johnson Bear Case

Fair Value: US$173.55 per share

Implied premium to this Fair Value relative to the last close of US$244.12: about 40.7%

Revenue growth assumption: 6.30% a year

• Sees value in a large late stage drug pipeline, capital returns and the Kenvue spin off, but balances that against dependence on pharmaceuticals and MedTech for future growth.
• Assumes mid single digit revenue growth from a US$84b baseline, a 20% profit margin and ongoing buybacks, with the shares trading around a 22x P/E to reflect this profile.
• Flags unresolved litigation, patent expiries on key drugs and uncertainty around pipeline success as reasons why a Fair Value of about US$173.55 could sit well below the current share price.

Do you think there’s more to the story for Johnson & Johnson? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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