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Outlook for Johnson & Johnson is Healthy,
Legal Concerns Continue to Swirl

In the recent issue of The Value Line Investment Survey®, Ian Gendler, Executive Director, Value Line Research, called attention to Johnson & Johnson (JNJ). The New Jersey-headquartered corporation develops, manufactures, and sells a broad range of products in the healthcare field. It employs about 135,000 individuals and has a market capitalization of over $370 billion. Johnson & Johnson has been a component of the Dow Jones Industrial Average since 1997.

“Johnson & Johnson reported better-than-anticipated financial results for the second quarter. Sales came in at $20.562 billion, down a percentage point from the year-earlier mark, but well ahead of the 2% decline we had been modeling. That said, the real outperformance came at the bottom line, with the healthcare conglomerate reporting earnings of $2.08 a share, 43% above the prior-year tally and even further ahead of the 18% gain we were forecasting. While stock repurchases helped, the main reason for the beat was greater-than-anticipated profit margin improvement. Management did a good job controlling costs in the period, especially on the sales, marketing, and administrative side of things. For the full-year, we continue to estimate share net of $6.80, or 21% higher than 2018's tally.

“Although our business outlook for Johnson & Johnson is healthy, legal concerns continue to swirl. The company is feeling significant pressure on the litigation front, with talc-related litigation challenges new joined by questions about management's knowledge of the addictiveness of opiods. While these issues remain up in the air, they very well may result in significant costs at some point. Meantime, the lawsuits will continue to hang over the stock. For perspective, JNJ shares are down in value since posting the strong June-period financials.

“The stock offers above-average 3- to 5-year price recovery potential. While the otherwise solid risk profile has been muddied by legal uncertainties, we think that JNJ's finances and leading market position in multiple arenas will help it weather the storm and deliver solid total returns over the long haul.”

Editor’s Note: Market Focus is Value Line’s open-access newsletter which provides unbiased insights on investments, the markets and the global economy.

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