How J&J Can Be A $150 Stock
J&J (NYSE:JNJ), despite its already massive scale, has impressed investors with gains over the last two years, adding roughly 40% to its market value. The company’s stock has increased from around $103 at the end of 2015 to nearly $140 now. Can this growth continue? With our interactive technology, you can see the fundamental conditions necessary for J&J’s stock to reach $150 stock – a level which it has never reached. Take a look at our interactive breakdown of key drivers for J&J to see how this can happen.
Our price estimate for J&J stands at $125, implying a slight discount to the market.
J&J Will Need To Beat Expectations In Pharma & Medical Device Businesses
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In order for J&J’s stock to be worth $150 – from a fundamental standpoint – the company will need to earn roughly $6 billion in annual revenue above our current forecast in the next 5 years, and will need to increase its operating margin by 400 bps during the same timeframe, assuming a constant P/E ratio. These expectations would imply a nearly 20% higher EPS forecast in 5 years’ time, and would peg J&J’s fundamental value at around $150. We believe that J&J will need to show improvement across its pharma and medical devices business for these expectations to make sense. Below we take a look at two scenarios that could make J&J a $150 stock.
Better Than Expected Pharma Performance In The Next 5 Years
In this scenario, the expected decline in J&J’s Immunology drug portfolio is stemmed, and the company manages to tackle the competition from Remicade’s biosimilar. In addition, Inbruvica and Darzalex would have to show an accelerated ramp up. These conditions could potentially add $4 billion in annual revenue by 2022 and could help J&J improve its operating margin to 40%, implying 400 bps expansion.
Price Competition Tackled In Medical Device Market In The Next 5 Years
In this scenario, J&J leverages its strong market positioning and innovates to tackle competition, resulting in $2 billion in additional revenue and 400 bps expansion in medical device operating margin in the next 5 years.
While there are, of course, other ways in which the company’s stock could reach $150, we believe that these are the most likely scenarios through which its fundamental value could reach that level.
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