Dividends4Life: Stock Analysis: Johnson & Johnson (JNJ)

Stock Analysis: Johnson & Johnson (JNJ)

Posted by D4L | Monday, February 11, 2008 | | 10 comments »

Linked here is a PDF copy of my detailed analysis of Johnson & Johnson (JNJ). Below are some highlights from the above linked analysis:

Company Description: Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. JNJ is trading at a discount to 1.), 2.) and 3.) of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, JNJ is trading at a 12.9% discount. JNJ gets a Star for being fairly valued.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. JNJ only earned one Star in this section for 3.) above - it has grown dividends for 10+ years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. JNJ did not earn any Stars in this section. I would have to own JNJ for 11 years before it would pay what I am currently earning in a MMA, and after 20 years the net present value of what I earned in excess of the MMA would only be $2,517 per $1,000 invested.

Other: JNJ is a well run company that has a long track record of raising dividends. It is a member of S&P Dividend Aristocrats and The Broad Dividend Achievers. JNJ sells products that are, for the most part, immune from economic cycles.

Conclusion: JNJ earned one Star in the Fair Value section, one Star in the Dividend Analytical Data section and no Stars in the Dividend Income vs. MMA section for a total of Two Stars, which rates it as 2-Star Weak. For some time now, I have been looking for an entry point to purchase JNJ. The overall rating of two Stars has not changed since my first review on 11-21-2007. However, many of the metrics I look at have changed. Was it enough to make me buy? Check back tomorrow and I will break-down the differences between now and then and reveal whether I bought or walked.

Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I may have owned shares of JNJ.

What are your thoughts on JNJ?

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  1. Anonymous // February 11, 2008 at 11:36 AM

    I'll be taking a look at JNJ this week as well, it will be interesting to see if our numbers are close.



  2. D // February 11, 2008 at 5:01 PM

    I think that JNJ is the dividend investor's dream with its 14% annual average dividend growth for the past 10 years and its above average dividend yield. JNJ is a household name, and a Dow Jones contituent but most importantly a dividend aristocrat. I would also analyse JNJ next week to see what I would recommend.
    By the way your reports look very professional. Is your blog a bait and switch service, where you make your readers like your blog and then you start charging us for it? ;-)

  3. Anonymous // February 11, 2008 at 8:15 PM

    American Dividend Investor: I look forward to seeing your JNJ analysis.

    Dividend Growth: I have high hopes for JNJ. It looks like I may get to buy more at a lower price. Thanks for your kind words. By the time would get around to charging, it would be too late. I will have given it all away in the free models.

    Best Wishes,

  4. Thicken My Wallet // February 11, 2008 at 11:20 PM

    Good stock finally at a decent valuation.

    The pharma part of the company may take a hit if the Democrats win the White House and decide to control drug costs but its only short-term pain.

  5. Anonymous // February 12, 2008 at 6:51 AM

    I have owned JNJ for a long time. It has been a consistent performer. A friend of mine likes to say JNJ is the closest thing to a health care mutual fund you can buy.

  6. Anonymous // June 21, 2008 at 9:32 AM

    for the last 5 years my jnj stock has underperformed almost every other stock i've held especially similar companies like P&G.

    Last year I decided to investigate to form my own conclusions about why this is the case.

    The one, what I would call "Major" issue this company has is this.
    Upon review of the analyst presentations (Depuy, Ethicon and a few other MD&D) I noticed a lot of replication in "new products" in the pipeline from the previous year. I chose these business because they are out of sight and of mind but represent a huge chunk of earnings

    My take away, was that the rumours there was nothing new to sustain the company, were in my opinion confirmed and I sold.

    I think they are a house of cards trying to catch up with previous mis-truths

  7. Anonymous // June 21, 2008 at 10:31 PM

    Anon: It is all about the entry point. I waited for years before I got an acceptable entry point for JNJ. It has performed well for me. I have been waiting for an good entry point for PG - it seems like forever. it is getting close.

    Best Wishes,

  8. Anonymous // October 23, 2008 at 12:24 AM

    Google "CNN Johnson & johnson" and read the first article that comes up.

    Sean Dix

  9. Anonymous // March 18, 2009 at 4:54 AM

    JNJ has been consistently increasing its dividends for 46 consecutive years. From the end of 1998 up until December 2008 this dividend growth stock has delivered a 5.60% annual average total return to its shareholders.At the same time company has managed to deliver a 13.40% average annual increase in its EPS since 1999.Johnson & Johnson’s revenue growth rate has been very stable over the past 10 years with a dip occurring in the past 2 years. The recent upswing in quarterly data is nice to see and my hope is that JNJ is able to carry thing through to their year end.Their constant growth rate makes JNJ Share Price healthy in the share market.

  10. Anonymous // March 18, 2009 at 2:46 PM

    Ryan: JNJ continues to be one of my favorite companies. I am a little concerned about their unfunded pension and need to do a little more homework there.

    Best Wishes,

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