Johnson & Johnson (JNJ 1.49%) is a blue-chip pharma stock with annual revenues in the neighborhood of $80 billion -- and that's before considering the potential of its coronavirus vaccine candidate, JNJ-78436735. What's more, it has several other multibillion-dollar opportunities coming out of its research and development (R&D) pipeline in the next few years.
Yet Johnson & Johnson did not perform as well as the S&P 500 over the past year. Indeed, the company stock only returned 12% compared to the index's 16% gain. But could the healthcare giant beat the market in 2021?
JNJ Total Return Level data by YCharts
Another promising COVID-19 vaccine candidate
According to an interim data release from its phase 1/2 clinical trial, more than 90% of 805 healthy volunteers who received JNJ-78436735 developed neutralizing antibodies against SARS-CoV-2 by day 29 post-inoculation. Further, 100% of participants aged 18 to 55 developed those antibodies by day 57. The vaccine with well-tolerated, with only fever, muscle aches, and injection site pain reported as side effects.
The immune response persisted well up to day 71, which marked the most recent update to the trial. Here's the kicker -- the experimental vaccine produced exceptional efficacy after just a single dose. For comparison, only 52% of patients who received the Pfizer (PFE 2.40%) vaccine developed neutralizing antibodies against COVID-19 after the first injection.
At this point, Johnson & Johnson has a pair of phase 3 clinical trials well under way (one for a single-dose inoculation, one for a two-dose regimen), and expects that if all goes well, it could get regulatory clearance for its candidate as early as February. It has the production capability to produce 1 billion doses of the coronavirus vaccine this year.
Between them, the U.S., European Union, and U.K. have pre-ordered over 330 million doses of JNJ-78436735. The U.S. contract outlined a price of $10 per dose. The company has also pledged to provide 500 million doses to low-income countries at no profit. Given that this could be a one-dose vaccine and is stable at normal refrigerator temperatures, it may be a game-changer in terms of distribution logistics.
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Not just about COVID-19
Beyond its speculative aspects, Johnson & Johnson's core businesses in pharmaceuticals, consumer wellness products, and medical devices are stable. Each quarter, the company brings in about $21.1 billion in revenue and earnings per share (EPS) of $2.20. Those metrics have been growing at a rate of 1.7% and 3.8% per year, respectively. The pandemic had the greatest impact in Johnson & Johnson's medical device segment, which fell 3.9% year over year. Luckily, the firm's novel coronavirus vaccine would more than offset lagging sales if approved.
It's also highly profitable, with more than $13 billion in free cash flow over the first nine months of 2020. Due to its high net margin of 21%, its cash balance outweighs its debt by more than $7 billion. It pays out as much as $2.7 billion in dividends each quarter, with an annual yield of 2.44%.
A big reason for Johnson & Johnson's continued growth is its commitment to innovation. It spends about $2.8 billion on R&D per quarter. The large-cap pharma business is performing studies in pursuit of more than 50 label expansions and new indications for its therapeutics. Johnson & Johnson also expects to file or launch 10 compounds (mostly in oncology) that will have blockbuster potential.
Most notably, it has apalutamide in phase 3 trials targeting prostate cancer and amivantamab in phase 2 tests for the treatment of non-small cell lung cancer. That's not all, it's subsidiary Janssen Pharmaceuticals is also involved in novel fields such as RNA interference therapy, in addition to developing a coronavirus vaccine.
A top-tier pharma stock
Right now, Johnson & Johnson is trading for about five times revenue and 23 times free cash flow. While that may seem a little expensive, keep in mind that the company could grow its revenue by as much as 15% per year if it manages to fulfill 1 billion vaccine orders at $10 per dose.
With that in mind, investors will be getting much more than their money's worth by purchasing the stock now. And at the end of the day, regardless of its coronavirus vaccine's success, Johnson & Johnson is a fantastic long-term portfolio stock thanks to its diverse pipeline's potential.
