There are still several weeks left in the year, but Johnson & Johnson (JNJ -1.33%) appears to be on course to generate its second-highest stock performance over the last decade in 2017. A couple of major acquisitions helped the healthcare giant boost revenue to an all-time high in the third quarter.
As the new year approaches, though, investors are more focused on the future than the past. Will 2018 be Johnson & Johnson's best year yet? Probably yes. And probably no.
A record year in sight
It all depends on how you define "best." I think Johnson & Johnson will likely have its best year ever in some ways. For example, J&J's highest level of revenue ever for a year was set in 2014, when the company made $74.3 billion. J&J is on track to generate revenue topping $75 billion in 2017. Will 2018 be an even better year? Unless something totally unexpected happens, it will.
Wall Street analysts project that Johnson & Johnson will post revenue of nearly $81 billion next year. I think that's a realistic estimate. Remember that the company's 2017 results won't include a full year of sales from its acquisitions of Abbott Medical Optics and Actelion. Next year's results will.
In addition, J&J should receive a boost in 2018 from several new drugs and new indications for existing drugs. Blockbuster autoimmune disease drugs Simponi and Stelara have added new indications in recent months, as has cancer drug Imbruvica. J&J hopes to win U.S. regulatory approval for several other drugs in 2018, including prostate cancer drug apalutamide.
Improvement on the top line should also trickle down to the bottom line. The consensus analysts' estimate calls for J&J to report 2018 earnings per share of $7.86. If the company meets expectations (which I think it will), J&J will record all-time high earnings next year.
An almost-impossible challenge
Asking if 2018 will be the best year yet for Johnson & Johnson stock is a different question altogether. I don't think it will be.
Don't get me wrong. I suspect J&J will be successful next year. As we just saw, the company's revenue and earnings should be better than ever. But the bar is set very high for 2018 to be the best year ever for J&J stock's performance.
Since 1980, the stock has gained more than 30% in a year seven times. The most recent of those was in 2013, when J&J's share price jumped nearly 31%. In two of those years, the stock soared more than 50%. The best performance (at least in the last four decades) was in 1991, with J&J stock skyrocketing nearly 60%.
What would it take for J&J to increase its share price by 60% or more next year? A miracle. The company won't grow earnings fast enough on its own to warrant that kind of increase in valuation. With the bull market getting really long in the tooth, I wouldn't count on investor exuberance to push it up that much, either. Even a big acquisition would have a slim chance of generating those kinds of gains.
For Johnson & Johnson stock to soar 60%, it would require the company to add over $224 billion to its market cap. That's greater than the market caps of every publicly traded company in the world except for 17 -- with J&J being one of those.
Do you really care?
So 2018 will be the best year yet for Johnson & Johnson in some ways but not in others. Do you really care? Even if you have a lot of money invested in the stock, I don't think you should.
The only reason why the performance of a stock over a one-year period should matter to you is if you need to get the money back during that time frame to use for other purposes. And if that's the case, investing in stocks isn't your best choice anyway.
What you really should care about is what the long-term prospects are for Johnson & Johnson. You should care about its ability to generate strong cash flow for years to come. On those counts, J&J looks very good. Its practically minting money, thanks to a diverse array of products across multiple areas of healthcare.
I suspect that 2018 will be a very good year for Johnson & Johnson, regardless of whether it's the best in every category or not. More importantly, the company's prospects for providing great total returns to investors for the next decade and beyond seem bright.