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 - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.