Key takeaways
View moreJohnson & Johnson appears undervalued based on significantly lower valuation multiples compared to industry averages (EV/EBITDA of 14.53x vs. 68.31x industry average), strong profitability metrics well above industry averages, and substantial growth opportunities through strategic acquisitions and R&D investments. While significant risks exist, particularly from legal challenges and STELARA patent expiration, these appear to be more than priced into the current valuation, especially given the company's strong financial position and diverse revenue streams.
- JNJ's revenue has been decreasing, indicating potential challenges in maintaining or growing sales, with revenue declining from $22.519 billion in Q4 2024 to $21.894 billion in Q1 2025.
- The company's profitability ratios, such as ROA (11.93%), ROE (29.45%), and ROIC (20.62%) in Q1 2025, are strong and significantly above industry averages, indicating efficient asset and equity utilization.
- JNJ's liquidity, as measured by the current ratio (1.26 in Q1 2025), is below the industry average of 6.78, suggesting a need for improvement in short-term asset management.
- The company faces significant legal and regulatory risks, particularly related to talc-containing products, which could impact its financial performance and reputation.
- Strategic acquisitions, such as IntraCellular Therapies, are expected to drive growth, with management increasing operational sales guidance for 2025 by $700 million.
- JNJ's Enterprise Value to EBITDA (14.53) and Enterprise Value to Sales (4.65) are below the industry averages, suggesting the company may be undervalued.
- JNJ has shown mixed performance compared to its peers, outperforming MRK and AZN over the past year but underperforming AZN over longer periods.
- Management is focused on cost management and margin improvement through restructuring programs, which are expected to improve future profitability.
- The company is committed to investing heavily in R&D, with over $3 billion invested in Q1 2025, approximately 15% of sales, to drive innovation and pipeline advancements.
Evaluation summary
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Company Overview:
- Johnson & Johnson (JNJ) is a global healthcare company engaged in the research, development, manufacture, and sale of products in the healthcare field. It operates through two segments: Innovative Medicine and MedTech.
- The Innovative Medicine segment focuses on areas like immunology, infectious diseases, neuroscience, oncology, cardiovascular, and pulmonary hypertension. Key products include STELARA, REMICADE, and DARZALEX.
- The MedTech segment includes products used in interventional solutions, orthopaedics, surgery, and vision.
- Benchmarks used for comparative analysis include the Health Care Select Sector SPDR Fund (XLV), while peers include Merck & Co., Inc. (MRK) and AstraZeneca PLC (AZN).
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Financial Performance:
- JNJ's revenue has shown a decreasing trend in the most recent quarters, from $22.519 billion in Q4 2024 to $21.894 billion in Q1 2025.
- Net income has fluctuated significantly, with a high of $10.999 billion in Q1 2025, primarily due to a $7 billion reversal of a talc settlement proposal, and a low of $2.694 billion in Q3 2024.
- Gross profit margin has remained relatively stable, ranging from 66.84% in Q1 2025 to 69.19% in Q3 2024.
- Net profit margin has varied widely, from 11.99% in Q3 2024 to 50.24% in Q1 2025, reflecting the impact of unusual expenses and legal settlements.
- Return on Average Assets (ROA) was 11.93% in Q1 2025, significantly higher than the industry average of -64.66%.
- Return on Average Total Equity (ROE) was 29.45% in Q1 2025, also substantially higher than the industry average of -486.22%.
- Return on Average Invested Capital (ROIC) was 20.62% in Q1 2025, outperforming the industry average of -130.88%.
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Operational Efficiency:
- Total current assets increased from $55.893 billion in Q4 2024 to $71.551 billion in Q1 2025, driven by an increase in cash and short-term investments.
- Total current liabilities also increased, from $50.321 billion in Q4 2024 to $56.903 billion in Q1 2025.
- Working capital increased significantly from $5.572 billion in Q4 2024 to $14.648 billion in Q1 2025.
- Net operating cash flow decreased from $6.983 billion in Q4 2024 to $4.174 billion in Q1 2025.
- Free cash flow to equity decreased from $5.371 billion in Q4 2024 to $3.379 billion in Q1 2025.
- Capital expenditure was $809 million in Q1 2025, compared to depreciation, depletion, and amortization of $1.772 billion.
- The company increased its dividend for the 63rd consecutive year, demonstrating a commitment to returning value to shareholders. Cash dividends paid were $2.989 billion in Q1 2025.
- The current ratio was 1.26 in Q1 2025, above 1 but below the industry average of 6.78.
- The total debt to total equity ratio was 66.90% in Q1 2025, below the industry average of 115.57%.
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Growth Opportunities:
- JNJ is pursuing strategic acquisitions to expand its capabilities, including the acquisitions of Shockwave Medical and IntraCellular Therapies.
- The company is investing heavily in R&D, with over $3 billion invested in Q1 2025, approximately 15% of sales.
- JNJ is focused on advancing its pipeline, with several promising candidates, including Tremfya, Ichotrochindra, and riboflavin plus LASCRUZ.
- The company is expanding Tremfya's entry into inflammatory bowel disease, with a launch in ulcerative colitis accelerating operational sales growth to 20%.
- JNJ is also expanding its robotic surgery capabilities, with OTAVA clinical trials started, supporting submission for US FDA de novo in general surgery.
- Management increased operational sales guidance for the full year by $700 million to reflect the addition of Caplyta following the completion of the IntraCellular acquisition.
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Recent Developments and Market Sentiment:
- The earnings call on April 15, 2025, highlighted strong operational sales growth of 4.2% in Q1 2025, driven by both Innovative Medicine and MedTech sectors, despite the STELARA exclusivity loss.
- The company completed the acquisition of IntraCellular Therapies, adding Caplyta to the CNS portfolio and solidifying sales growth expectations.
- JNJ is returning to the tort system regarding talc bankruptcy ruling and pursuing a motion to exclude plaintiffs' experts.
- Management expressed confidence in the company's 2025 guidance, highlighting the strength and diversification of the business.
- Analysts focused on the impact of tariffs, gross margins, STELARA biosimilar erosion, and pipeline expectations.
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Risks and Threats:
- JNJ faces significant legal and regulatory risks, particularly related to talc-containing products and opioid marketing practices.
- The company is exposed to pricing pressures from healthcare cost containment efforts, government regulation, and competition from generic/biosimilar products.
- Operational risks from manufacturing, supply chain, and IT system disruptions also pose a threat.
- Macroeconomic factors like inflation, currency fluctuations, and global supply chain disruptions pose ongoing operational challenges.
- The loss of STELARA exclusivity and subsequent biosimilar competition is impacting sales.
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Valuation Analysis:
- Enterprise Value to EBITDA was 14.53 in Q1 2025, below the industry average of 68.31, suggesting the company may be undervalued relative to its earnings.
- Enterprise Value to Sales was 4.65 in Q1 2025, significantly below the industry average of 8881.92, also indicating potential undervaluation.
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Price Performance:
- JNJ's stock price has fluctuated between $145.11 and $157.10 from May 2, 2025, to June 30, 2025.
- JNJ has shown mixed performance compared to the Health Care Select Sector SPDR Fund (XLV). While JNJ outperformed XLV YTD, it underperformed in the 1-month, 2-year, and 3-year periods.
- Compared to its peers, JNJ has outperformed both Merck & Co., Inc. (MRK) and AstraZeneca PLC (AZN) over the past year, but has underperformed AZN over longer periods such as 2 and 3 years.
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Future Outlook:
- Management increased operational sales growth guidance for 2025 to 3.3%-4.3%, with a midpoint of $92 billion, reflecting the acquisition of IntraCellular Therapies.
- Adjusted operational sales growth, excluding acquisitions and divestitures, is maintained at 2%-3%.
- Operating margin improvement is guided at 300 basis points.
- Adjusted reported earnings per share guidance is maintained at $10.50-$10.70.
- Innovative Medicine and MedTech sales growth are expected to be higher in the second half of the year.
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Summary:
- Johnson & Johnson exhibits strong profitability and solvency, but revenue growth and liquidity are areas of concern.
- The company's strengths include its diversified business model, strong R&D pipeline, and commitment to returning value to shareholders.
- Weaknesses include declining revenue, below-industry-average liquidity, and significant legal risks.
- Opportunities include strategic acquisitions, market expansion, and pipeline advancements.
- Threats include legal challenges, pricing pressures, and macroeconomic factors.
- JNJ's financial health is stable, but sustainable growth requires addressing revenue challenges and optimizing capital allocation.
- Key factors to monitor include the integration of recent acquisitions, the outcome of legal matters, and the performance of new products.
- Overall, JNJ presents a conservative investment profile with moderate growth potential balanced against identified risks. The company's position relative to industry trends and recent developments suggests a need for careful monitoring of its strategic initiatives and risk management efforts.
Price history
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Fundamentals
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Insights
- Johnson & Johnson exhibits strong profitability and operational efficiency, with ratios exceeding industry averages, but revenue growth is a concern.
- The company maintains a solid solvency position with manageable debt levels, but liquidity is below industry standards and needs improvement.
- Strategic acquisitions and legal challenges significantly influence financial performance, requiring careful monitoring of integration efforts and litigation outcomes.
- Future success hinges on effective management of debt, successful integration of acquisitions, and navigating the competitive and regulatory landscape.
- The company's commitment to innovation and shareholder returns is evident, but sustainable growth requires addressing revenue challenges and optimizing capital allocation.
Analysis
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Revenue - Revenue has been decreasing, indicating potential challenges in maintaining or growing sales. - The company's sales/revenue is significantly greater than the industry average. - The company needs to address the decreasing trend in sales/revenue to ensure sustainable growth.
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Profitability
- The company's profitability ratios, such as return on average assets, return on average total equity, return on average total capital, and return on average invested capital, are strong, indicating efficient asset and equity utilization.
- The company's net profit margin and EBITDA margin are also strong, indicating efficient operational efficiency.
- The company's profitability ratios are above the historical average and the industry average.
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Liquidity
- The company's current ratio and quick ratio are above 1, indicating that the company has enough current and liquid assets to cover its short-term liabilities.
- However, the company's current ratio and quick ratio are below the industry average.
- The company needs to improve its liquidity position to align with industry standards.
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Solvency
- The company's total debt to total equity ratio and debt/EBITDA are below the industry average, indicating that the company has less debt than equity and enough earnings to cover its debt.
- The company's solvency position is strong, indicating that the company has enough assets to cover its liabilities.
- The company's debt levels are manageable, and it has the capacity to meet its long-term obligations.
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Operational Efficiency
- The company's enterprise value to EBITDA and enterprise value to sales are below the industry average, indicating that the company is undervalued.
- The company's operational efficiency is strong, as indicated by its high EBITDA margin.
- The company needs to improve its market valuation to reflect its strong operational efficiency.
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Cash Flow Analysis - Net income has fluctuated significantly, reflecting the impact of unusual expenses and strategic initiatives. - Changes in working capital have been volatile, impacting operating cash flow. - Capital expenditures have varied, reflecting investments in property, plant, and equipment.
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Risk Factors
- The company faces significant legal and regulatory risks, particularly related to talc-containing products and opioid marketing practices, which have resulted in substantial legal costs and reserves.
- Innovation, product development, and commercialization are critical to Johnson & Johnson's long-term growth, but the company must navigate a highly competitive and regulated industry landscape.
- Macroeconomic factors like inflation, currency fluctuations, and supply chain disruptions pose ongoing operational challenges that could impact the company's financial performance.
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Future Outlook
- Johnson & Johnson's strategy involves pursuing strategic acquisitions and partnerships to expand its capabilities, though integration and synergy capture present execution risks.
- The company's balance sheet is expected to continue to evolve as it integrates recent acquisitions and manages its debt obligations.
- Key metrics to monitor include the current ratio, debt-to-equity ratio, and cash flow from operations.
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Financial statements
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Public filings
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- Johnson & Johnson is a diversified healthcare conglomerate with leading positions in pharmaceuticals, medical devices, and consumer health products, though it recently divested the consumer business.
- The company faces significant legal and regulatory risks, particularly related to talc-containing products and opioid marketing practices, which have resulted in substantial legal costs and reserves.
- Innovation, product development, and commercialization are critical to Johnson & Johnson's long-term growth, but the company must navigate a highly competitive and regulated industry landscape.
- Macroeconomic factors like inflation, currency fluctuations, and supply chain disruptions pose ongoing operational challenges that could impact the company's financial performance.
- Johnson & Johnson's strategy involves pursuing strategic acquisitions and partnerships to expand its capabilities, though integration and synergy capture present execution risks.
- Overall, Johnson & Johnson appears to be a diversified healthcare leader, but it must effectively manage its legal exposures, regulatory environment, and operational challenges to drive sustainable growth and profitability.
Core Business and Operations:
- Johnson & Johnson is a global healthcare company focused on pharmaceutical, medical device, and consumer health products
- The company operates in two main business segments:
- Innovative Medicine: Develops and sells prescription drugs and biologics across therapeutic areas like immunology, infectious diseases, neuroscience, oncology, and pulmonary hypertension
- MedTech: Produces a broad portfolio of medical devices and technologies used in orthopaedics, surgery, cardiovascular, and vision care
- Key products include STELARA, REMICADE, DARZALEX, XARELTO, INVEGA SUSTENNA, and various medical devices and surgical products
- Sells products globally through wholesalers, retailers, hospitals, and healthcare professionals
Industry and Market Trends:
- Faces pricing pressures from healthcare cost containment efforts, government regulation, and competition from generic/biosimilar products
- Operates in a highly regulated industry with increasing scrutiny from government agencies and evolving privacy/cybersecurity requirements
- Exposed to macroeconomic factors like inflation, currency fluctuations, and global supply chain disruptions
Recent Events:
- Completed the separation of the Consumer Health business (Kenvue) through an exchange offer in 2023
- Acquired several companies in 2024, including Shockwave Medical, Ambrx, and Proteologix, to expand its medical device and biopharmaceutical capabilities
- Proposed a "prepackaged" Chapter 11 bankruptcy plan in 2024 to resolve talc-related liabilities
Risk Factors:
- Challenges in innovation, development, and commercialization of new products
- Intellectual property disputes and patent expiration risks
- Product liability, safety, and efficacy concerns leading to litigation and regulatory actions
- Pricing pressures and reimbursement challenges in healthcare markets
- Operational risks from manufacturing, supply chain, and IT system disruptions
- Exposure to global economic, political, and environmental conditions
Legal Matters:
- Significant ongoing litigation related to talc-containing products and opioid marketing practices
- Defending against patent challenges and ANDA filings for key pharmaceutical products
- Responding to government investigations and lawsuits related to pricing, marketing, and contracting practices
Management's Discussion and Analysis:
- Revenue growth driven by strong performance in Innovative Medicine segment, particularly in oncology and pulmonary hypertension products
- Profitability impacted by acquisition-related costs, restructuring charges, and legal/regulatory expenses
- Maintaining strong liquidity and cash flow to fund operations, R&D, and strategic initiatives
- Focused on integrating recent acquisitions, advancing pipeline, and resolving major legal matters
Earnings calls
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Earnings Report 2025Q1 (2025-04-15)
Key takeaways
- Diversification is Key: JNJ's diversified business model is proving resilient in the face of significant headwinds, particularly the STELARA biosimilar impact.
- Strategic Acquisitions are Driving Growth: The acquisitions of Abiomed, Shockwave, and IntraCellular Therapies are contributing significantly to revenue growth and expanding the company's presence in key therapeutic areas.
- Pipeline Momentum is Strong: JNJ has a robust pipeline with several promising candidates, including Tremfya, Ichotrochindra, and riboflavin plus LASCRUZ, which are expected to drive future growth.
- Cost Management and Margin Improvement are Priorities: The company is focused on managing costs and improving margins through restructuring programs and operating leverage.
- Tariffs Pose a Challenge: Tariffs are a significant concern, and the company is exploring mitigation strategies, but pricing leverage is limited.
- U.S. Investment is a Long-Term Strategy: The company's commitment to invest heavily in U.S. manufacturing and R&D reflects a long-term strategy to strengthen its domestic operations and mitigate supply chain risks.
- MedTech Recovery Expected: After a challenging start to the year, MedTech is expected to see improved performance in the second half, driven by new product launches and normalized procedure volumes.
Focus of management’s prepared remarks
- Q1 2025 Performance: Strong operational sales growth of 4.2% driven by both Innovative Medicine and MedTech sectors, despite STELARA exclusivity loss.
- 2025 as a Catalyst Year: Positioning 2025 as a year to set up accelerated growth for the second half of the decade and beyond.
- Innovative Medicine Highlights: 4.2% operational sales growth despite STELARA headwinds, with double-digit growth from eleven key brands, including DARZALEX. Approval of DARZALEX-based quadruplet regimen in Europe.
- Oncology Portfolio Advancements: Phase 3 data for riboflavin plus LASCRUZ showing extended overall survival in EGFR-mutated lung cancer. European Commission approval of subcutaneous riboflavin.
- Immunology Growth: Tremfya's entry into inflammatory bowel disease, with launch in ulcerative colitis accelerating operational sales growth to 20%. FDA approval in Crohn's disease.
- MedTech Performance: 4.1% operational sales growth with strong performance from Abiomed and Shockwave, as well as surgical vision and wound closure.
- Abiomed and Shockwave Milestones: Updates to American College of Cardiology and American Heart Association guidelines for Impella heart pump. Launch of Javelin Peripheral IVL catheter by Shockwave.
- Robotic Surgery Expansion: OTAVA clinical trials started, supporting submission for US FDA de novo in general surgery.
- Investment in the U.S.: Commitment to invest more than $55 billion in the U.S. over the next four years in manufacturing, R&D, and technology.
- Acquisition of IntraCellular Therapies: Completion of the acquisition, adding Caplyta to the CNS portfolio and solidifying sales growth expectations.
- Talc Bankruptcy Ruling: Returning to the tort system and pursuing motion to exclude plaintiffs' experts.
- Dividend Increase: Increased dividend for the sixty-third consecutive year.
- Caplyta Data: Sharing data for major depressive disorder showing improvements in MADRS in Phase 3 studies. Anticipate approval of Caplyta later this year as an adjunctive treatment for major depressive disorder.
- Tremfya Data: Tremfya demonstrated superiority versus STELARA in all pooled endoscopic endpoints.
- Ichotrochindra Data: Phase 3 data demonstrated that nearly half of adult patients and three-quarters of adolescents with moderate to severe plaque psoriasis treated with Ichotrochindra achieved completely clear skin by week 24.
- MedTech Restructuring: Implementing a restructuring program designed to simplify and focus the operations of our surgery business.
- Cash and Capital Allocation: Investment in innovation remains the highest priority in our capital deployment, and during the first quarter, we invested more than $3 billion in research and development, approximately 15% of sales.
- 2025 Guidance: Increasing our operational sales guidance for the full year by $700 million to reflect the addition of Caplyta following the completion of the IntraCellular acquisition.
- Pipeline Progress: In innovative medicine, this includes expected approvals in nipocalumab for generalized myasthenia gravis, subcutaneous riboflavin for non-small cell lung cancer in the U.S., Tremfya subcutaneous induction for ulcerative colitis, and Caplyta for adjunctive major depressive disorder.
Focus of the analyst Q&A
- Tariffs:
- What is the impact of tariffs on the 2025 guidance, and what is the annualized impact?
- How will the company mitigate the impact of tariffs, including pricing strategies and production relocation?
- Gross Margins:
- What are the drivers behind the lower-than-expected gross margins in the quarter?
- What is the outlook for gross margins considering mix, tariffs, and other factors?
- STELARA Biosimilar Erosion:
- How will the STELARA biosimilar erosion trajectory accelerate throughout the year?
- To what extent will the transition to other brands like Tremfya smooth out the erosion impact?
- Recession Resilience:
- How recession-proof is the business, and which areas are most at risk of underperforming in a recession?
- Section 232 Pharma Tariffs:
- Is the potential focus of Section 232 pharma tariffs on generics API versus complex branded biologics based on the most likely outcome or speculation?
- Orthopedic Sales:
- How much of the orthopedic sales decline is attributable to specific variables?
- How should we think about the recovery in the back half of the year and into next year?
- Pipeline Expectations:
- What has changed regarding the expectations for Carvykti, Talvey, and Tecvayli, which were previously highlighted as key growth drivers?
- Tremfya and Ichotrochindra Opportunities:
- How do the opportunities for Tremfya in IBD and Ichotrochindra in psoriasis come together as a portfolio in immunology?
- Orthopedic Market Performance:
- Is the orthopedic market performance in line with market growth, or is the company underperforming relative to the market?
- Transfer Pricing Structures:
- How might tariffs alter transfer pricing structures, and what can the company offer up on this front?
Summary
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Financial Performance
Johnson & Johnson reported worldwide sales of $21.9 billion for Q1 2025, a 4.2% operational increase. U.S. sales grew by 5.9%, while sales outside the U.S. increased by 2.1%. Net earnings were $11 billion, with diluted earnings per share at $4.54, significantly up from $1.34 in the previous year, primarily due to the reversal of a $7 billion talc settlement proposal. Adjusted diluted earnings per share were $2.77, a 2.2% increase. The company reaffirmed its 2025 guidance and increased the dividend for the 63rd consecutive year.
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Revenue Drivers
Growth in Innovative Medicine was driven by strong performance from key brands like DARZALEX (up 22.5%), Tremfya (up 20.1%), and Erleada (up 14.6%). The launch of Ribryvant plus LasClues also contributed significantly. MedTech growth was fueled by the acquisitions of Abiomed (up 14%) and Shockwave, as well as strong performance in surgical vision and wound closure. STELARA sales declined 32.3% due to biosimilar competition and Part D redesign.
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Profit Margins and Cost Management
Cost of products sold deleveraged by 320 basis points due to unfavorable transactional currency and product mix, primarily due to the decline of STELARA. Selling, marketing, and administrative expenses improved by 130 basis points due to operating spend management. R&D expenses leveraged by 190 basis points due to portfolio progression. Innovative Medicine margin declined from 42.9% to 42.5%, while MedTech margin declined from 26.4% to 25.9%. A restructuring program in the surgery business is expected to improve future margin profile.
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Guidance and Outlook
The company increased its operational sales growth guidance for 2025 to 3.3%-4.3%, with a midpoint of $92 billion, reflecting the acquisition of IntraCellular Therapies. Adjusted operational sales growth, excluding acquisitions and divestitures, is maintained at 2%-3%. Reported sales growth is expected to be between 2.6% and 3.6%. Operating margin improvement is guided at 300 basis points. Adjusted reported earnings per share guidance is maintained at $10.50-$10.70. Innovative Medicine and MedTech sales growth are expected to be higher in the second half of the year.
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Strategic Initiatives
Johnson & Johnson announced a commitment to invest over $55 billion in the U.S. over the next four years in manufacturing, R&D, and technology. The company completed the acquisition of IntraCellular Therapies, adding Caplyta to its CNS portfolio. A restructuring program in the surgery business is underway to simplify operations and improve profitability. The company plans to exit certain non-strategic product lines and optimize select sites.
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Management Commentary
Management expressed confidence in the company's 2025 guidance, highlighting the strength and diversification of the business. They emphasized the company's ability to deliver growth despite the STELARA biosimilar impact. Management also highlighted the importance of tax policy in building manufacturing capacity in the U.S. and expressed optimism about the pipeline potential, particularly for Tremfya and Ichotrochindra. Joaquin Duato stated, "2025 is going to be a catalyst year for Johnson & Johnson."
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Industry and Market Conditions
The company noted competitive pressures in certain MedTech segments, including electrophysiology and spine. They also acknowledged the impact of China VBP (volume-based procurement). Management is monitoring job reports as an indicator of healthcare coverage and procedure demand. They believe healthcare is relatively recession-proof, though elective procedures may be delayed during economic downturns.
Comparative analysis
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Benchmarks (as of 2025-06-30)
Health Care Select Sector SPDR Fund (XLV)
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Performance Comparison:
- Johnson & Johnson (JNJ) has shown mixed performance compared to the Health Care Select Sector SPDR Fund (XLV). While JNJ outperformed XLV in the Year To Date (YTD), 3-month, 6-month, and 1-year periods, it underperformed in the 1-week, 1-month, 2-year, and 3-year periods. For instance, JNJ outperformed XLV by 9.03% YTD (7.83% vs. -1.2%) but underperformed by -3.75% over the last month (-1.71% vs. 2.04%).
- The consistency of JNJ's performance relative to XLV has varied, with periods of outperformance followed by periods of underperformance.
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Risk and Return Analysis:
- The annualized returns show that JNJ outperformed XLV over the past year (7.71% vs. -5.41%), but underperformed over the 2-year (-0.21% vs. 2.87%) and 3-year periods (-2.33% vs. 2.97%).
- In terms of annualized volatility, JNJ's volatility ranged from 9.89% to 32.97% during the period from Q3 2022 to Q2 2025, while XLV's volatility ranged from 7.78% to 32.24% during the same period. This indicates that JNJ and XLV have similar levels of volatility.
- The maximum drawdown for JNJ was -18.41% on 10/27/2023, while for XLV it was -17.11% on 05/14/2025. This suggests that JNJ and XLV have similar risk profiles in terms of potential losses from peak values.
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Risk-Adjusted Performance:
- The Sharpe Ratio for JNJ has generally been lower than that of XLV, indicating that XLV has offered better risk-adjusted returns over much of the observed period. For example, on 06/30/2025, the Sharpe ratio for JNJ was 0.5, while for XLV it was -0.31.
- The Beta value for JNJ has consistently been below 1, indicating that JNJ is less sensitive to market movements than XLV. As of 06/30/2025, the beta for JNJ was 0.01, while for XLV it was 0.48.
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Overall Assessment:
- Based on the analysis, Johnson & Johnson (JNJ) has shown mixed performance compared to the Health Care Select Sector SPDR Fund (XLV). While JNJ has outperformed XLV in certain periods, it has underperformed in others. XLV has generally offered better risk-adjusted returns, as indicated by its higher Sharpe Ratio. JNJ's lower beta suggests that it is less sensitive to market movements than XLV.
- A significant trend is the recent decrease in volatility for both JNJ and XLV. Additionally, JNJ's underperformance over longer time horizons (2 and 3 years) compared to its recent outperformance (YTD and 1 year) suggests a potential shift in its performance dynamics.
Peers Price History(as of 2025-06-30)
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Performance Comparison:
- Johnson & Johnson (JNJ) has shown mixed performance compared to its peers. Over the past year, JNJ has outperformed both Merck & Co., Inc. (MRK) and AstraZeneca PLC (AZN), with a return of 7.71% compared to MRK's -36.02% and AZN's -9.24%. However, over longer periods such as 2 and 3 years, JNJ has underperformed AZN, with returns of -0.42% and -6.83% respectively, compared to AZN's 9.99% and 13.39%.
- JNJ's performance has been inconsistent relative to its peers, with periods of outperformance and underperformance depending on the time frame.
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Risk and Return Analysis:
- The annualized returns show that JNJ has provided lower returns compared to AZN over 2 and 3-year periods. For example, the 3-year annualized return for JNJ is -2.33% compared to AZN's 4.28%.
- JNJ has generally exhibited lower annualized volatility compared to MRK and AZN. For instance, in Q3 2024, JNJ's volatility ranged from 10.02% to 21.99%, while MRK's ranged from 15.17% to 37.32%, and AZN's ranged from 13.83% to 20.02%.
- JNJ's maximum drawdown of -18.41% is less severe than MRK's -43.44% and AZN's -28.57%, indicating a more conservative risk profile.
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Risk-Adjusted Performance:
- The Sharpe Ratio for JNJ has generally been lower than that of MRK, indicating that MRK has offered better risk-adjusted returns for much of the observed period. However, recently all three companies have shown negative Sharpe Ratios.
- JNJ's beta values are consistently below 1, suggesting that it is less sensitive to market movements compared to its peers.
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Overall Assessment:
- Johnson & Johnson (JNJ) presents a more conservative investment profile compared to Merck & Co., Inc. (MRK) and AstraZeneca PLC (AZN), characterized by lower volatility and smaller drawdowns. While JNJ has outperformed its peers over the past year, its longer-term returns have been less competitive, particularly when compared to AZN. The recent negative Sharpe Ratios across all three companies suggest challenging market conditions.
- Investors seeking stability and lower risk may find JNJ appealing, while those prioritizing higher growth potential may look to AZN, despite its higher volatility. The significant drawdowns experienced by MRK highlight the importance of considering downside risk.
Peers Fundamentals(as of 2025-03-31)
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Market Position and Size:
- Johnson & Johnson (JNJ) stands out with a significantly larger market capitalization of $371,647.07 million compared to Merck & Co., Inc. (MRK) at $190,762.95 million and AstraZeneca PLC (AZN) at $158,785.54 million.
- This substantial market capitalization aligns with JNJ's higher revenue ($89,331 million), gross income ($60,956 million), EBITDA ($28,583 million), and net income ($21,810 million) compared to its peers, indicating a strong market valuation of its earnings and cash flow generation.
- JNJ's sheer size and financial metrics solidify its dominant market position within the pharmaceutical industry.
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Profitability and Efficiency:
- JNJ's Gross Profit Margin (68.24%) is slightly lower than MRK (74.68%) and AZN (72.62%), but all three significantly exceed the industry average of -821.89%.
- Its EBITDA Margin (32.0%) is also competitive, though lower than MRK's 41.84% but similar to AZN's 32.86%, with all three far surpassing the industry average of -491588.89%.
- JNJ's Net Profit Margin (24.41%) is lower than MRK's 27.33% but higher than AZN's 14.18%, with all three greatly exceeding the industry average of -458991.11%.
- While JNJ leads in revenue, its profitability margins are not the highest, suggesting that its size doesn't automatically translate to superior profitability compared to its peers.
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Financial Health and Stability:
- JNJ's Current Ratio (1.26) is lower than MRK (1.41) but higher than AZN (0.9), with all three falling below the industry average of 6.78.
- Its Quick Ratio (1.03) follows a similar pattern, lower than MRK (1.16) but higher than AZN (0.7), and all three are below the industry average of 6.63.
- JNJ's Total Debt to Total Equity Ratio (66.9%) is lower than MRK (72.09%) and AZN (77.11%), and all three are significantly below the industry average of 115.61%, indicating a more conservative capital structure.
- JNJ's Debt / EBITDA ratio (1.83) is higher than MRK (1.31) and AZN (1.73), but all three are well below the industry average of 6.3.
- JNJ's Cash Flow / Total Debt (64.37) is lower than MRK (71.39) but higher than AZN (45.67), with all three significantly above the industry average of -2988.25.
- JNJ demonstrates a manageable debt level and adequate liquidity, although its current and quick ratios are below the industry average.
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Valuation and Market Perception:
- JNJ's Enterprise Value To Sales ratio (4.59) is higher than MRK (3.96) and slightly higher than AZN (4.55), but all three are significantly below the industry average of 8792.46.
- Its Enterprise Value To EBITDA ratio (14.35) is higher than MRK (9.47) and slightly higher than AZN (13.85), but all three are significantly below the industry average of 67.41.
- JNJ's Price To Earnings ratio (17.14) is higher than MRK (11.06) but lower than AZN (25.97), with all three significantly below the industry average of 136.15.
- JNJ's Price to Book Ratio (4.75) is higher than MRK (3.95) but lower than AZN (4.99), with all three significantly below the industry average of 6.83.
- JNJ's Price To Sales Ratio (4.18) is higher than MRK (3.01) and AZN (3.71), but all three are significantly below the industry average of 11978.3.
- JNJ's valuation metrics suggest it is reasonably valued compared to its peers, but the industry average appears skewed by outliers.
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Cash Flow and Capital Management:
- JNJ's Net Operating Cash Flow ($24,783 million) surpasses MRK ($20,878 million) and AZN ($10,518.3 million).
- Its Total Capital Expenditure ($4,426 million) is also higher than MRK ($3,839 million) and AZN ($3,092.58 million).
- JNJ's Free Cash Flow ($20,357 million) exceeds MRK ($17,039 million) and AZN ($7,425.75 million).
- JNJ's robust cash flow generation capacity supports its market position and enables investments in growth opportunities.
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Growth and Future Prospect:
- JNJ exhibits consistently lower growth in Sales/Revenue, EBITDA, Free Cash Flow, and EBIT Margin compared to the peer group average.
- Conversely, JNJ demonstrates consistently higher growth in Net Income and Basic Earnings per Share compared to the peer group average.
- JNJ's 3-year CAGR is lower than its 5-year CAGR for Sales/Revenue and EBITDA, indicating a recent slowdown in revenue and EBITDA growth.
- JNJ's competitive position may be at risk due to its lower revenue and EBITDA growth compared to peers.
- JNJ's superior growth in Net Income and Basic Earnings per Share may be driven by cost-cutting measures or one-time gains rather than sustainable revenue growth.
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Potential for Investment:
- JNJ's strengths include its dominant market position, substantial cash flow, and higher Basic Earnings per Share.
- However, its weaknesses include lower revenue growth, lower profitability margins compared to MRK, and current and quick ratios below the industry average.
- JNJ presents a mixed investment picture, offering stability and cash flow but potentially limited upside due to slower growth and lower profitability compared to some peers.
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Key Risks and Considerations:
- JNJ's slower revenue growth compared to peers poses a risk to its long-term competitive advantage.
- Its lower profitability margins compared to MRK suggest potential operational inefficiencies.
- The below-industry-average liquidity ratios may raise concerns about its ability to meet short-term obligations.
- Investors should carefully consider JNJ's valuation in light of its growth prospects and profitability relative to its peers.
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Overall Assessment:
- JNJ's overall financial health is strong, characterized by its dominant market position, substantial cash flow generation, and solid profitability.
- However, its revenue growth lags behind peers, and its liquidity ratios are below the industry average.
- While JNJ maintains a conservative capital structure, its lower profitability margins compared to MRK suggest room for operational improvements.
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