This Semiconductor Chip Company Is Likely To Offer Better Returns Over Johnson & Johnson Stock

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JNJ: Johnson & Johnson logo
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Johnson & Johnson

We think that Intel stock (NASDAQ: INTC) currently is a better pick compared to the pharmaceuticals bellwether Johnson & Johnson stock (NYSE: JNJ), given Intel’s better prospects and comparatively lower valuation. JNJ stock trades at a P/S ratio of 5.2x, compared to 2.5x for INTC stock. We compare these two companies due to their similar operating income. Although both the companies saw a rise in revenue in the recent past, J&J’s growth has been better.

If we look at stock returns, J&J’s 10% growth is much better than the -24% change for Intel over the last twelve months. This compares with 7% growth in the broader S&P 500 index. While both the companies are likely to see continued top-line expansion, Intel is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe that INTC stock will offer better returns than JNJ stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of Johnson & Johnson vs. IntelWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. J&J’s Revenue Growth Has Been Stronger

  • Both companies posted sales growth over the last twelve months. Still, J&J’s revenue growth of 13.6% is much higher than 1.5% for Intel.
  • Looking at a longer time frame, J&J’s sales grew 15% to $93.8 billion in 2021, compared to $81.6 billion in 2018, while Intel’s sales grew 12% to $79.0 billion, currently, compared to $70.8 billion in 2018.
  • While J&J’s medical devices business faced headwinds in 2020 due to the pandemic’s impact, it rebounded in 2021.
  • The company’s pharmaceuticals business is seeing strong growth led by market share gains for its cancer drugs, Imbruvica and Darzalex, and immunology drugs, Stelara and Tremfya.
  • Intel, over the recent years, has seen a slowdown in the pace of sales growth for its client computing and data center products.
  • This can be attributed to increased competition from AMD and an overall shortage of raw materials.
  • However, the company has multiple new products in the pipeline, including Sierra Forest CPUs and Granite Rapids, which will likely aid its revenue growth over the coming years.
  • Our Johnson & Johnson Revenue and Intel Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, Intel’s revenue is expected to grow faster than J&J’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 5.1% for Intel, compared to a 4.2% CAGR for J&J, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Intel Is More Profitable, But It Comes With Higher Risk

  • J&J’s operating margin of 25.1% over the last twelve months is lower than 28.1% for Intel.
  • This compares with 24.5% and 31.3% figures seen in 2019, before the pandemic, respectively.
  • J&J’s operating income rose 13% to $23.6 billion in 2021, compared to $20.8 billion in 2018, while that of Intel’s declined 5% to $22.2 billion, currently, compared to $23.4 billion in 2018.
  • Intel’s free cash flow margin of 30% is better than 25% for J&J.
  • Our Johnson & Johnson Operating Income and Intel Operating Income dashboards have more details.
  • Looking at financial risk, Intel’s 37% debt as a percentage of equity is much higher than 7% for J&J, while its 5% cash as a percentage of assets is lower than 17% for the latter, implying that J&J has a better debt position as well as more cash cushion.

3. The Net of It All

  • We see that J&J has demonstrated better revenue growth and it comes with lower risk. Intel is more profitable and it is available at a comparatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Intel is currently the better choice of the two.
  • The table below summarizes our revenue and return expectations for J&J and Intel over the next three years and points to an expected return of 26% for Intel over this period vs. a 7% expected return for J&J, implying that investors are better off buying INTC over JNJ, based on Trefis Machine Learning analysis – Johnson & Johnson vs. Intel – which also provides more details on how we arrive at these numbers.

While INTC stock may outperform JNJ, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Johnson & Johnson vs. Devon Energy.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
INTC Return -3% -7% 32%
JNJ Return 3% 7% 59%
S&P 500 Return -2% -6% 99%
Trefis Multi-Strategy Portfolio -1% -9% 258%

[1] Month-to-date and year-to-date as of 4/20/2022
[2] Cumulative total returns since the end of 2016

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