雅虎香港財經 J&J (JNJ) Trades Below 200 & 50-Day Moving Averages: Buy the Dip?
Johnson & Johnson’s JNJ stock has been trading below its 200-day and 50-day moving averages since the end of June. On Jul 3, the stock’s closing price of $145.69 was below its 50-day moving average of $147.61 and the 200-day moving average of 151.95.
In the past year, J&J’s stock has declined 9.9% against an increase of 28.9% for the industry. The stock has also underperformed the sector as well as the S&P 500.
JNJ Stock Underperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Declining Estimates
The Zacks Consensus Estimate for earnings has declined from $10.65 to $10.62 per share for 2024 and from $10.93 to $10.92 per share for 2025 over the past 60 days.
JNJ Estimate Movement
Image Source: Zacks Investment Research
J&J’s Legal and Other Troubles
J&J, a healthcare titan, faces a slew of lawsuits, which allege personal injuries to patients caused by the use of its medicines, mainly its talc and opioid products. J&J faces more than 60,000 lawsuits for its talc-based products. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer.
J&J’s subsidiary, LTL Management, which was established to manage claims in the cosmetic talc litigation, filed for voluntary bankruptcy twice to equitably resolve all present and future talc-related claims. However, both bankruptcy filings were rejected by courts, stating that J&J was not in enough financial stress to qualify for bankruptcy. In May, LTL Management proposed a new plan to resolve all present and future pending ovarian cancer talc lawsuits.
J&J will also face the patent expiration of the blockbuster drug Stelara in 2025. Stelara generated sales of $10.9 billion in 2023. The launch of generics could significantly erode the drug’s sales and hurt J&J’s sales and profits.
However, not everything is going wrong for J&J. Let’s discuss the positives.
The Most Diversified Drug Maker
J&J’s biggest strength is its diversified business model. In August 2023, J&J completely separated its Consumer Health business into a newly listed company called Kenvue KVUE, which now operates as a separate and fully independent company. With the complete separation of the Consumer Health segment, J&J has now become a two-sector company focused on the Pharmaceutical and MedTech fields.
It has more than 275 subsidiaries, which clearly means that the business is extremely well-diversified. Its diversification helps it to withstand economic cycles more effectively. J&J has 26 platforms with more than $1 billion in annual sales. It also has one of the largest R&D budgets among pharma companies.
Innovative Medicines Unit Showing Consistent Strength
J&J’s Innovative Medicine (previously Pharmaceuticals) unit is performing at above-market levels. Growth is being driven by existing products like Darzalex, Stelara, Tremfya, Uptravi and Erleada, and also continued uptake of new launches, including Spravato, Carvykti and Tecvayli. J&J has a goal of growing the Innovative Medicines unit into a $60 billion ($57 billion on a constant-currency basis) segment by 2025. The segment’s sales rose 13.6% in 2021, 6.8% in 2022 and 5.9% in 2023 on an organic basis. J&J expects the Innovative Medicine business to grow 5% to 7% from 2025 to 2030.
MedTech Segment Trends Improving
In the pandemic years, though J&J’s MedTech segment was hurt due to a decline in elective surgical procedures, sales have been improving since 2022 due to recovery in surgical procedures and the segment’s enhanced competitiveness from new product launches. The company has also strengthened its medical devices portfolio by acquiring companies. In 2022, J&J bought Abiomed, strengthening MedTech’s presence in higher growth segments. In May 2024, J&J acquired Shockwave Medical, which is expected to strengthen its position in the highest-growth, innovation-oriented segments of cardiovascular intervention.
Attractive Valuation
From a valuation standpoint, J&J appears attractive relative to the industry and is trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 13.53 forward earnings, lower than 20.02 for the industry and the stock’s mean of 16.07. The stock is also trading near its 52-week low.
JNJ Stock Valuation
Image Source: Zacks Investment Research
Conclusion
J&J’s segments are showing a growing trend and the same is likely to continue in the years ahead. The company has sufficient funds to pursue bolt-on acquisitions and deals to boost its portfolio. J&J spent $17 billion on M&A deals in 2022 and $3 billion in 2023. The company is also returning value to shareholders through share buybacks and dividend payments. It has hiked its dividends for 62 consecutive years. Its current dividend yield of around 3.4% is attractive. However, the company is likely to continue to incur billions of dollars for legal expenses in future quarters due to its pending lawsuits.
The recent dip in the stock price has sent investors wondering whether this is a buying opportunity. We suggest a new investor should avoid buying J&J stock right now due to uncertainty surrounding its legal battles. An investor interested in buying a large drugmaker may consider investing in Novo Nordisk NVO instead, which has a Zacks Rank #2 (Buy).
However, those who already own J&J’s stock may stay invested as the company is generating decent sales and profit growth. If J&J can manage to completely resolve its talc lawsuits, it will remove a significant overhang on the stock and make it an attractive investment. Long-term investors may consider buying J&J’s stock on the recent price dip.
J&J currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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