Is It Time To Buy The Rebound In Johnson & Johnson?

Margin Strength Drives Johnson & Johnson Higher 

Johnson & Johnson NYSE: JNJ shares are moving higher on a mixed report. The company missed on the top line but margins came in well above expectation and drove solid results on the bottom line. This has share prices moving higher when the broader market is moving lower and suggests outperformance in the coming year. With the yield running near 2.6% and expected to grow, we are not surprised the market would be interested. The only question now is how high the stock might go? 

Johnson & Johnson Moves Higher On Mixed Results 

Johnson & Johnson did not have a bad quarter by any means but the $24.8 billion in net revenue did miss the Marketbeat.com analysts consensus by 200 basis points. That aside, the revenue is good for growth of 10.3% versus last year and last year sales were up 8%. A good deal of the strength is due to COVID-19 vaccines, testing, and mitigation with vaccines alone worth $1.6 billion or about 6.5% of sales. Pharma, in general, saw its revenue grow 16.5% over last year while Medical Devices and Consumer Health both saw smaller 4.1% and 1.1% increases. 

Moving down, the company reported a 173% increase in GAAP earnings, 14% on an adjusted basis, to beat the Marketbeat.com consensus estimate. The $2.13 in GAAP earnings beat by a penny despite the revenue weakness and the company is guiding for similar strength this year. The new guidance is calling for revenue in a range of $97.3 to $98.3 billion compared to the Marketbeat.com consensus of $97.7 with EPS in a range above the consensus. The $10.40 to $10.60 is nearly a dime better than the $10.32 forecast by the analysts and we see upside risk in the figure. COVID-19 is going nowhere fast even while COVID-restricted activities such as medical procedures and beauty treatments are bouncing back. 

The Analysts Like Johnson & Johnson’s Value And Yield 

There has been no analyst activity in the wake of the Q4 report but we think that will change over the coming weeks. The most recent activity, including a price target decrease the day before the release, has had a bearish tone but is nonetheless bullish. While the Marketbeat.com consensus price target is down in the trailing 30-day and 90-day periods the analysts still rate it a Buy and are expecting about 12% of upside from the $165.50 level. In our view, the consensus rating may not change but we are expecting to see the price target move higher. 

As for the value and yield, Johnson & Johnson is trading at only 16.0X its forwards earnings estimates and offering a value relative to the broader market. At the same time, it is yielding close to 2.60% which is more than double the S&P 500 average and attractive in its own right. The dividend comes with a 43% payout ratio, strong balance sheet, and 59-year history of growth so we aren’t too worried about its safety. 

The Technical Outlook: Johnson & Johnson Is Range-Bound 

Shares of Johnson & Johnson have been range-bound for the last year or so and may stay that way for the foreseeable future. Within that range, however, it looks like share prices are moving higher and could move up to resistance levels near $167, $174.50, and the all-time high at $180. A break above $180 would be bullish but we are not holding our breath. If the company continues to grow and deliver bottom-line results then we’ll start looking for a new all-time high and the stock to move up to the Marketbeat.com consensus level.