Is Johnson & Johnson Stock Set to Reward Long-Term Holders?

Key Points

• Johnson & Johnson stock is up nearly 2% after announcing its $14.6 billion acquisition of Intra-Cellular Therapeutics.
• This is one of several deals the company has made since 2022, but investors are waiting to see the results.
• However, JNJ stock is fundamentally undervalued, and next week’s earnings could provide a catalyst to push the stock above a significant technical level.  

Johnson & Johnson NYSE: JNJ stock is up 1.8% in the five days after the company announced its $14.6 billion acquisition of Intra-Cellular Therapeutics Inc. NASDAQ: ITCI. The company will buy all the existing shares of the neuroscience firm at a price of $132. This will be an all-cash deal.

The deal will build on Johnson & Johnson’s 70-year experience in neuroscience. Specifically, the company now adds Intra-Cellular's CAPLYTA® to its drug portfolio. This is a once-daily pill that has received FDA approval to treat schizophrenia and is the only FDA-approved drug to treat depressive episodes associated with bipolar depression. CAPLYTA is currently being reviewed for additional indications.

However, the acquisition also gives Johnson & Johnson access to Intra-Cellular's promising clinical-stage pipeline that includes drugs to treat generalized anxiety disorder and the psychosis and agitation that can be part of Alzheimer’s disease.

It’s clear that Johnson & Johnson is leaning into mental health at a time when its significance has never carried more weight. However, after several years of deals, shareholders must wonder if an attractive valuation is enough to consider JNJ stock in 2025.

Is It Time for the Company’s Investments to Pay Off? 

The biopharmaceutical industry is an adapt-or-die industry. Among medical stocks, Johnson & Johnson is well equipped to prosper in this industry. In addition to its diversified pipeline, the company’s robust balance sheet allows it to grow through acquisition. 

Intra-Cellular is the latest example of this, but it’s not the only deal that JNJ has made in recent years. In 2024, the company paid $13.1 billion for Shockwave Medical, and in 2022, it bought Abiomed for $16.6 billion.

This year, Johnson & Johnson is forecast to generate $88.5 billion in revenue. That's down about 4% from the prior year. The company’s ability to pay for these acquisitions is not in question, and it isn’t taking an appreciable bite out of the company’s earnings. But it is raising the company’s net debt to a somewhat uncomfortable 66% level.

Nevertheless, investors are rallying toward biopharma companies with GLP-1 drugs; some may want Johnson & Johnson's investments to pay off in the form of revenue before assigning a premium value to the stock. That’s reflected in their wait-and-see approach to JNJ stock. The company carried the dubious distinction of being one of the “Dogs of the Dow” in 2024. In the last three years, the total return of JNJ stock has come in at 5.3% negative. That’s particularly concerning when you consider the company’s 3.3% dividend yield. 

JNJ Is Objectively Undervalued

At a time when the average price-to-earnings (P/E) ratio of the S&P 500 index is around 24.8x, it’s worth noting that JNJ stock trades at an appealing 14.5x forward earnings as of January 15, 2025. That attractive valuation comes with a dividend that carries a solid 3.3% dividend yield.

In fact, Johnson & Johnson is one of the companies that is part of the exclusive dividend kings. The company has been increasing its dividend for 62 consecutive years, and the company’s rock-solid balance sheet backs that dividend. 

And with the stock down about 10% in 2024 compared to the S&P 500’s return of around 21%, there’s room for JNJ to play catch up as investors rotate out of technology stocks and look for areas of growth.

JNJ’s Path to Recovery: What Investors Should Watch

JNJ stock has been trading below its 50-day simple moving average (SMA) since late October. That coincided with the company’s third-quarter earnings report. However, as of midday trading on January 16, 2025, the stock is within 2% of that technically significant mark.

A key catalyst for the stock may come when the company reports earnings on January 22.  A significant breakout above that level may be a sign that investors are becoming more bullish on this undervalued dividend king.

A breakout above the 50-day SMA would also coincide with the Johnson & Johnson analyst forecasts on MarketBeat, which give JNJ stock a consensus price target of $174.41. This would give investors 18.7% upside in addition to a stable dividend.