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Is It Too Late to Buy Johnson & Johnson Stock?

By Anirudh Shankar - May 6, 2021 at 6:20AM

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Here's why you haven't missed the boat on this blue chip.

Blue-chip pharmaceutical company Johnson & Johnson (JNJ -2.07%) has seen its share of successes over the past 12 months. From developing a COVID-19 vaccine to bolstering a pipeline of new and exciting products, the future looks bright for the company. Here's why you might not be too late in buying the stock. 

Vaccine worries

Johnson & Johnson responded swiftly to develop a COVID-19 vaccine, as did Pfizer, BioNTech SE, and Moderna. As of April 12, more than 6.8 million doses of the Johnson & Johnson (Janssen) vaccine had been administered in the U.S.

After six reported U.S. cases of a rare and severe type of blood clot in individuals after receiving the Johnson & Johnson vaccine, the Centers for Disease Control (CDC) and U.S. Food and Drug Administration (FDA) began reviewing the data. For context, the six cases represent 0.000088% of the total 6.8 million who were vaccinated as of April. Nevertheless, the CDC and the FDA paused both the distribution and administration of the vaccine until the CDC could do an extensive review and report its findings.

The CDC convened a meeting of the Advisory Committee on Immunization Practices on April 14 to review the cases and assess whether or not they present a risk for the safety of those receiving the vaccine. After reviewing the cases, the CDC and FDA resumed their recommendation of Johnson & Johnson's Janssen vaccine in the U.S on April 25, but required a new warning label on the vaccine.

During these two weeks, Johnson & Johnson's stock traded with some volatility. With most of the bad news priced into the stock, it is still up 2.6% from the beginning of April. Although the CDC has resumed distribution of the vaccine, it's being allocated at smaller numbers than before, going from almost 5 million doses a week to a projected 700,000 doses a week. This is likely just a precautionary measure by the FDA and CDC to ease the vaccine back into distribution, and it shouldn't be a long-term problem for Johnson & Johnson. In fact, it may present an opportunity to buy into the company given the recent volatility. 

Doctor administers a vaccine to a patient while wearing full personal protective equipment.

Image source: Getty Images

High cash flows

Johnson & Johnson has been a high-cash-flow business through its many business segments as well as diversification among regions. Its consumer health segment includes famous brands like Tylenol, Listerine, Aveeno, Zarbees, and Zyrtec. Its terrific pharmaceuticals lineup includes Stelara (plaque psoriasis), Imbruvica (lymphoma), and Darzalex (blood cancer). The company also operates a worldwide medical device business through two main segments, electrophysiology and neurovascular. In 2020, The consumer-health, pharmaceuticals, and medical device business brought in $14.1 billion, $45.6 billion, and $23 billion, respectively.

The company is also heavily diversified across many regions that include the U.S., Europe, Asia, and Africa. In just the fourth quarter of 2020, Johnson & Johnson derived $11.8 billion in revenue from the U.S. markets, and supplemented that with $5.3 billion from Europe, $1.4 billion from the rest of the western hemisphere, and $4 billion from Asia and Africa. If you're looking at it percentage-wise, the company derived 52.4% of 2020's total revenue from the U.S., 23.5% from Europe, 17% from Asia and Africa, and 6% from the rest of the western hemisphere.

Johnson & Johnson's pipeline also suggests a lot of promise for bringing new drugs to the market to drive more revenue. It's looking at 10 potential drug approvals to treat certain indications in both the U.S. and the EU, as well as four drugs in phase 3 trials to treat new indications. Johnson & Johnson also has five planned submissions in both the U.S. and EU to treat several indications, and four more drugs in phase 2 trials.

The company has already seen a lot of success in its top three drugs by sales in Stelara, Imbruvica, and Darzalex. These drugs have grown their sales by 21%, 39%, and 21%, respectively, year over year from 2019 to 2020. Most of these drugs have been growing sales over the last few years, and this has enabled Johnson & Johnson to become one of the premier cash-flow machines in the market. 

A great time to buy

Johnson & Johnson recently reported earnings, and the news couldn't be better. It managed to beat estimates on both GAAP and non-GAAP earnings per share by $0.22 and $0.24, respectively. The company also beat on revenue estimates by almost 8% year over year, and updated its 2021 revenue guidance by revising it up from the lower end of $90.5 billion to $90.6 billion. It is no surprise that this company is able to raise earnings guidance, but to do it in a recession speaks volumes about its management and wide moat when it comes to business and regional diversification.

Currently, Johnson & Johnson trades at a forward P/E of 17.4. Over the last 12 months, the company has had well over an 18 P/E, and sometimes crossed into trading at a 19 P/E. Its current share price of about $165 could present a great opportunity to pick up shares at a cheaper valuation and capture upside on the way up. Johnson & Johnson also offers a decent 2.4% dividend yield, that is almost double what the SPDR S&P 500 ETF Trust (SPY 0.00%) offers at just 1.33%. 

Anirudh Shankar owns shares of Pfizer. The Motley Fool recommends Johnson & Johnson and Moderna Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$167.14 (-2.07%) $-3.53
SPDR S&P 500 ETF Trust Stock Quote
SPDR S&P 500 ETF Trust
SPY
$419.99 (0.00%) $0.00
Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$48.29 (-3.32%) $-1.66
Moderna, Inc. Stock Quote
Moderna, Inc.
MRNA
$171.81 (-1.41%) $-2.46
BioNTech SE Stock Quote
BioNTech SE
BNTX
$158.59 (-1.45%) $-2.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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