Johnson & Johnson (JNJ, Financial), a global healthcare giant, has witnessed a daily loss of -0.46% and a 3-month gain of 8.15%. With an Earnings Per Share (EPS) of 4.94, the question arises: is the stock modestly undervalued? We delve into an in-depth valuation analysis of Johnson & Johnson (JNJ) to answer this crucial question.
A Snapshot of Johnson & Johnson
Johnson & Johnson is the world's largest and most diverse healthcare firm, with three divisions: pharmaceutical, medical devices and diagnostics, and consumer. The drug and device groups represent close to 80% of sales and drive the majority of cash flows for the firm. The GF Value of Johnson & Johnson stands at $183.86, while its current stock price is $165.49. This comparison suggests that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value suggests that the stock of Johnson & Johnson is modestly undervalued. The stock's fair value is estimated considering historical multiples, the company's past business growth, and future performance estimates. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and if it's significantly below, it may be undervalued. Given its current price and market cap of $398.50 billion, Johnson & Johnson appears to be modestly undervalued.
Financial Strength Analysis
Johnson & Johnson's financial strength is crucial for potential investors to avoid the risk of permanent capital loss. The company's cash-to-debt ratio stands at 0.63, ranking worse than 56.57% of 1050 companies in the Drug Manufacturers industry. Overall, the financial strength of Johnson & Johnson is rated 7 out of 10, indicating fair financial strength.
Profitability and Growth
Johnson & Johnson's profitability over the past 10 years and its operating margin of 25.5% indicate strong profitability. However, its growth ranks worse than 57.61% of 887 companies in the Drug Manufacturers industry, with a 3-year average revenue growth rate worse than 52.8% of 911 companies in the industry.
ROIC vs WACC
Comparing the Return on Invested Capital (ROIC) of 14.82 to the Weighted Average Cost of Capital (WACC) of 6.07 indicates that Johnson & Johnson is creating value for shareholders.
Conclusion
In conclusion, Johnson & Johnson's stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than most companies in the Drug Manufacturers industry. For more information about Johnson & Johnson's stock, check out its 30-Year Financials here.
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