Has Johnson & Johnson’s Stock Peaked?

+14.83%
Upside
157
Market
180
Trefis
JNJ: Johnson & Johnson logo
JNJ
Johnson & Johnson

Johnson & Johnson‘s (NYSE:JNJ) stock has come down slightly from its peak value and has been more or less stable for a while in absence of any meaningful triggers. Unless and until some good reliable news comes out regarding the company’s drug pipeline, we believe that further stock price appreciation is unlikely. Our price estimate for Johnson & Johnson stands at $105, which is at a slight premium to the market price. Here’s why the stock doesn’t have much room for appreciation in the near term, in our opinion.

  • Johnson & Johnson’s stock peaked at around $109 in late 2014, and the capital appreciation had strong correlation with the growth in its pharmaceuticals business. Until late last year, the perception was that the company’s pharma business was accelerating with Olysio (hepatitis C drug) as the latest addition to the arsenal. The situation changed drastically by the first quarter of 2015 as the drug’s sales plummeted. Now it is a waiting game to see if the company can rejuvenate its pipeline.
  • The growth in Johnson & Johnson’s medical devices and diagnostics business is dwindling and seems to be more or less flat. This has prompted the firm to divest some of the assets and this trimming of business may continue. Investors may get the impression that J&J is running out of growth options thus preventing further price appreciation.
  • Johnson & Johnson has been an industry stalwart in terms of returning capital back to shareholders in form of dividends. Additionally, the company has consistently increase the dividends every year, and most recently by 7%. However, given the slowdown in pharma segment and flat growth in medical devices, the company may be compelled to revisit its future dividend increments. If that happens, the stock may lose even more of its charm.

That said, the only realistic upside trigger that we see is potential new drug launches that become successful.  J&J plans to file at least 10 new drugs for regulatory approval by 2019, each of which has the potential to become a blockbuster product with annual sales of more than $1 billion. The company also announced its plans of 40 line extensions of current and new drugs.

See the links below for more information and analysis:

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