What’s Driving Johnson & Johnson’s Stock Price Growth?

by Trefis Team
Johnson & Johnson
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Johnson & Johnson’s (NYSE:JNJ) stock price grew 33% from around $105 levels by the end of 2016 to around $140 in 2019, primarily driven by revenue growth, expansion of the P/E multiple, and margins. Johnson & Johnson’s stock price growth was in line with growth seen for Pfizer but lower than that of Merck’s stock over the same period. Merck’s outperformance can primarily be attributed to the company’s success with its cancer drug Keytruda, which has received several regulatory approvals for multiple indications. In this note we focus on the factors that drove growth for Johnson & Johnson’s stock between 2016 and 2019. We can break down the movement in the stock price into three factors: 1. growth in revenue, 2. change in net income margin and share count, and 3. expansion of P/E multiple. You can look at our interactive dashboard analysis ~ What Factors Drove Over 30% Growth In Johnson & Johnson’s Stock Over The Last 3 Years? ~ for more details.

#1. Revenues Are Expected To Grow 14% From $71.9 Billion In 2016 To An Estimated $82.0 Billion In 2019. The Biggest Change In Revenue Was Driven By The Company’s Pharmaceuticals Segment

  • Johnson & Johnson’s pharmaceuticals segment added $7.3 billion in sales between 2016 and 2018, and it will likely add another $1.6 billion in sales this year, driven by higher oncology drugs sales.

#1.2 Johnson & Johnson’s Average Revenue Growth Over The Recent Years Has Been Higher Than Some of Its Peers

#2. Adjusted Net Income Grew At A Faster Pace Compared To Johnson & Johnson’s Revenues, Due To Slower Growth In Expenses

  • Johnson & Johnson’s adjusted net income will likely grow from $18.8 billion in 2016 to $23.4 billion in 2019.
  • This can be attributed to margin expansion and growth in revenues.
  • Total Adjusted Expenses will likely grow from $53.1 billion in 2016 to $58.8 billion in 2019, reflecting an average annual growth rate of 3.5%, which compares with a 4.6% figure for revenues. We discuss the factors that impacted the margin in the below section.

#2.1 Total Adjusted Expenses Will Likely Grow From $53.1 Billion In 2016 To $58.8 Billion In 2019

  • Notable change can be seen primarily in Non-GAAP adjustments, which grew from $2.2 billion in 2016 to over $7.0 billion in 2018, partly reflecting higher litigation charges.
  • Look at our interactive dashboard analysis for in depth view on Johnson & Johnson’s non-adjusted expenses.

#2.2 Adjusted EPS Has Also Seen Steady Growth, Led By Higher Net Income And Lower Share Count

  • Johnson & Johnson’s adjusted EPS is expected to grow from $6.73 in 2016 to $8.68 in 2019, driven by higher adjusted net income and lower share count.
  • No. of shares declined from 2.8 billion to 2.7 billion over the same period, amid the company’s authorized share buyback plan of $10.0 billion from July 2017, and $5.0 billion from December 2018.

#3. Price To Earnings Multiple for Johnson & Johnson Expanded Between 2016-2019, And It Has Been In Line With That of Merck But Higher Than That of Pfizer

  • Johnson & Johnson’s P/E multiple expanded from 14.4x in 2016 to 16.2x in 2019.
  • This compares with Merck, which saw its P/E multiple expand from 13.9x to 16.2x over the same period.
  • Pfizer’s P/E multiple expanded from 10.9x to 13.7x over the same period, amid approvals for its biosimilars.
  • Note these multiples are arrived at by using the average stock prices in December for the respective year, and adjusted earnings reported (or expected) for the following year.

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