Healthcare looks less popular than it was in the past. And that affected stock of Johnson & Johnson (NASDAQ: JNJ), the world’s biggest healthcare corporation. Johnson & Johnson shares have moved down more than 17 percent from the last rise and currently trades at a 52-week low.
The latest fall has come regardless of quite solid news from JHJ this year. Income has not been stellar, but it has been stable and good enough. Legal and regulatory worries surrounding opioids came out, but Johnson & Johnson released a big victory on the second legal front last month.
So the decrease in Johnson & Johnson looks a bit overwrought. Stock owners and investors are still receiving one of the world’s best businesses at a very fair price. The latest price rise moves the yield to a nice 3 percent. Short-term volatility will most likely continue, and business challenges may stay active. But even with these risks, Johnson & Johnson stock is still very affordable.
The latest weakness in Johnson & Johnson does maybe have some justification. While customers may know JHJ for its cures like Listerine, Benadryl, and Tylenol, the customer life is not JHJ’s bread and butter. The customer part generated less than 10 percent of fixed pre-tax profits per the 10-K last year.
That is the clear pharmaceutical business and to a smaller level medical devices, which are the real devices though. And both businesses seem quite demanding at some point. US President Donald Trump is prepared to start an action calling for lower medicine prices. Legal and regulatory push still remains intense, and Johnson & Johnson confronting potential liability for some drugs, as Lucas Hahn explained last month.
Cost controls and compensation pressures on medical devices have moved down to device producers. Even the customer business confronts a danger from Amazon.com (NYSE: AMZN), as Hahn stated out.
On the other side of the border, there are possible obstacles to JHJ’s growth. And observing at competitors for every business, a fairly muted valuation maybe is not very surprising.
Pharmaceutical peers Merck & Co, Inc. (NASDAQ: MRK) and Pfizer Inc. (NASDAQ: PFE) are selling at 12x and 11x forward income, respectively. One of the leaders in the business, Medtronic PLC (NASDAQ: MDT) sells at 16x, but I like that long-term stock session. Customer stocks like Kraft Heinz Co (NYSE: KHC) and Procter & Gamble Co (NASDAQ: PG) sell at multiyear lows among competitive worries.
Considering the widespread pushes here, and the stock market behavior toward similar shares, the pretty muted valuation added to Johnson & Johnson stock at the point does not look outlandish. Furthermore, 15 times multiple to the midlevel of this year EPS chart looks quite reasonable formed on how the stock markets are appraising JHJ competitors.
In fact, it is still totally clear Johnson & Johnson stock is too cheap. A 3 percent yield, even among growing Treasury yield, could offer new demands at those levels, especially given that Johnson & Johnson just collected the dividend by 7 percent. As explained, I see MDT at 16 times, and both MRK and PFE seem fancy at their own muted appraisals.