Johnson & Johnson (JNJ 0.15%) is one of the world's largest and most prominent healthcare leaders. If investing in a company came down to size, the stock would be a no-brainer buy. However, Johnson & Johnson has encountered legal and regulatory headwinds in the past few years, giving investors pause. Furthermore, revenue growth generally hasn't been impressive, nor has Johnson & Johnson's stock market performance. Is the pharmaceutical giant still worth investing in?
NYSE: JNJ
Key Data Points
The case for Johnson & Johnson
Some might describe Johnson & Johnson's business as boring, but sometimes, that's not such a bad thing. Selling pharmaceutical products is a steady and reliable business even when the economy is down, since patients never stop needing potentially lifesaving medicines.
Johnson & Johnson's portfolio features more than 10 blockbuster drugs and spans several therapeutic areas, from infectious diseases to oncology.
The healthcare giant is also a leading medical device maker, which adds diversification to its operations. Johnson & Johnson's financial results are generally steady and consistent. Check out the chart of revenue and net income below.
JNJ Revenue (Annual) data by YCharts.
The company's balance sheet is rock solid and has earned it an AAA credit rating from S&P, the highest available. While it's had not-so-impressive top-line growth in recent years, that could change in the long run, for at least two reasons.
First, Johnson & Johnson split from its consumer health business in 2023. This unit had become a drag on its revenue growth, and by getting rid of it, the company will be able to invest more in its core pharmaceutical and medical device business, which should lead to stronger sales growth. The split's effect on Johnson & Johnson's business will become clearer as time goes by.
Second, Johnson & Johnson has several growth opportunities. One of them is within the robotic-assisted surgery industry. Johnson & Johnson is developing the Ottava system to compete in this market dominated by Intuitive Surgical. Though Ottava isn't yet approved in the U.S., it likely will be eventually, and it would then provide a key source of ongoing revenue to the company.So I'm optimistic Johnson & Johnson's financial results will remain solid.
The healthcare leader is also an excellent income stock. Johnson & Johnson has increased its dividend payout for 62 consecutive years, making it a Dividend King. Between Johnson & Johnson's strong underlying business and excellent dividend program, the stock may be a solid pick for long-term, income-seeking investors.
Can the company overcome its obstacles?
Headwinds include thousands of talc-related lawsuits and a new law in the U.S. that gives Medicare the power to negotiate drug prices. The first round of negotiations will target three of the company's medicines.
Regarding the first issue, Johnson & Johnson is, through a subsidiary, proposing an $8 billion settlement that currently has the support of about 83% of eligible claimants and would resolve 99.75% of talc-related lawsuits against the company.
While it's not a done deal, things might be moving in that direction. Of course, that $8 billion will come out of Johnson & Johnson's pockets -- but for a company that generates more than $80 billion in revenue every year, it's not the end of the world.
Concerning the second problem, Johnson & Johnson has survived many regulatory changes in the past several decades. I'm confident the company has the flexibility to navigate this one, too. Johnson & Johnson's pipeline features almost 100 ongoing programs, so even if what it's paid for some drugs decreases, there are others to make up for that.
With more investments into pharmaceuticals following the separation of its consumer health segment, Johnson & Johnson's innovative capabilities will be enhanced.
My verdict
Johnson & Johnson's headwinds are unquestionably worth monitoring. But even with these obstacles, the company's stock is an excellent choice for some investors. It's not for those looking for high-growth companies, but it is a reliable, blue chip stock that dividend investors will love.
