by winston » Mon Jun 17, 2019 4:24 pm
not vested
Johnson & Johnson (JNJ)
This one is a traditional defensive stock, and it has a reputation for being a bit staid, but don’t let that fool you: Johnson & Johnson offers real value, consistently delivering on both dividend and long-term equity growth. Both are markers of a strong defensive play.
The company’s current dividend yield is 2.72%, which may seem small, but at current share prices it equates to an annual payout of $3.80.
Better than the actual dividend payment, however, is JNJ’s dividend history. The company has been paying, and steadily increasing, its dividend since the early 1970s. This policy of consistently rewarding shareholders provides a steady source of income for investors, and also encourages them to reinvest that income in the company. It’s a win-win policy.
As a long-term investment, JNJ has, like Apple, proven its worth. The stock has gained 56% in the last 5 years, and shows a 9% gain over the past 12 months. And also like Apple, JNJ has proven resilient in the face of adversity: last December, the stock took a hard hit from bad press related to the widely reported talcum powder recall, but has since regained most of that loss.
In another example of corporate resiliency, JNJ was recently given a buy rating with a $157 price target by five-star analyst Joanne Wuensch (Track Record & Ratings) of BMO Capital, after she reviewed the status of current legal action the company faced in the state of Oklahoma in regard to the opioid abuse epidemic.
Wuensch notes that the case will likely be resolved quickly, and points out, “Litigation is a common occurrence in the health care sector that takes significant time to resolve, and often headlines are worse than reality.” Her price target indicates confidence in the stock, and a 12% upside.
Johnson & Johnson’s success rests on two separate bases. The first, and most widely recognized, is the company’s array of popular consumer brands. JNJ is the producer of Band-Aids, Listerine, and Tylenol, to name just a few.
Consumer products provide a respectable 16.7% of annual revenue (nearly $14 billion), but the real money for JNJ lies in pharmaceuticals. To put it in perspective, two drugs – Remicade and Simponi – account for 11.3% of the company’s total revenues, two-thirds as much as all of the consumer products.
Unlike many large-scale drug producers, Johnson & Johnson is not deeply exposed to payment issues with the Medicare and Medicaid systems. This is important for investors, as both programs have reputations for underpaying, and with an election year coming up both programs are likely to become political footballs as candidates promise ever more benefits.
This is a key point noted by Terence Flynn (Track Record & Ratings). Writing for Goldman Sachs, Flynn says, “The company has the lowest exposure to Medicare/Medicaid within the group. As a result, the stock will be less impacted by potential drug pricing headlines/policy proposals ahead of the 2020 presidential election.” Flynn sets a price target of $163 for JNJ, suggesting an upside of 16%.
JNJ’s consensus rating of ‘Moderate Buy’ is derived from 7 buy and 5 hold reviews. The stock’s $149 average price target and $140 share price equate to an upside potential of 7%.
Source: Tip Ranks
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