Johnson & Johnson stock (NYSE: JNJ) has seen a 3% fall in a month, compared to a 2% fall for the broader S&P500 index. In the longer term, JNJ stock is up 12% from levels seen in late 2019, underperforming the broader S&P 500 index, up around 35%. The company has recently completed the spin-off of its consumer health business.
Interestingly, JNJ stock had a Sharpe Ratio of 0.2 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
This 12% rise for JNJ stock since late 2019 can primarily be attributed to 1. Johnson & Johnson’s revenue growth of 16% to $95 billion over the last twelve months, compared to $82 billion in 2019, 2. a 1.5% fall in its total shares outstanding to 2.6 billion, partly offset by 3. the company’s P/S ratio falling 4% to 4.5x revenues vs. 4.7x in 2019. This has meant that the company’s revenue per share metric has risen 17% to $36.53 now, compared to $31.11 in 2019. Our dashboard on Why Johnson & Johnson Stock Moved has more details.
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Johnson & Johnson’s revenue growth has been led by market share gains for some of its drugs, including Darzalex, Erleada, and Tremfya. This has helped offset the decline in Remicade sales, which faces biosimilar competition. Remicade sales peaked at $7 billion in 2016 and gradually declined to $2 billion in 2022. Johnson & Johnson’s MedTech business has benefited from an overall rise in procedure volume and its Abiomed acquisition last year.
The company recently announced its projections (excluding the consumer health business) for 2023. It expects sales to rise between 7% and 8% and its adjusted earnings per share to be in the range of $10.00 and $10.10. It maintains a 9.5% stake in Kenvue – its consumer health spin-off.
Some pharmaceutical stocks, including JNJ, have underperformed the broader indices this year due to concerns over the first drug price negotiations in the U.S. This is an effort by the government to cut its healthcare spending. The government spending on drugs is estimated to be over $50 billion. 
The recently released list of the first ten drugs under negotiations includes Johnson & Johnson’s Imbruvica, Stelara, and Xarelto. The combined sales of these three drugs stood at $16 billion in 2022. Although any pricing action will take place in 2026, investors are concerned about the scope of these negotiations in the future and its impact on the bottom line of pharmaceutical companies. There have been lawsuits filed by some of the big pharma companies, citing that lower drug prices could impact their research and development. 
From a valuation perspective, JNJ appears appropriately priced. We estimate Johnson & Johnson’s valuation at $172 per share, about 5% above the current market price. This represents a 17x P/E/multiple based on earnings of $10.05 on a per share and adjusted basis at the mid-point of the company’s provided guidance. It also aligns with the last four-year average P/E of 17x for JNJ. Now that the consumer healthcare business is separated, JNJ stock will likely see an upward revision in its valuation multiple. Still, any significant growth is unlikely, given the ongoing drug price negotiations.
While J&J stock has room for gains, check out how other Johnson & Johnson Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-2%||18%||102%|
|Trefis Reinforced Value Portfolio||-4%||32%||576%|
 Month-to-date and year-to-date as of 8/31/2023
 Cumulative total returns since the end of 2016
- Expensive Drugs Targeted for First U.S. Price Negotiations, Jared S. Hopkins and Stephanie Armour, Aug 29, 2023, The Wall Street Journal [↩]
- U.S. eyes battle with drug giants over 10 costly medications for seniors, Tony Romm, The Washington Post, Aug 18, 2023 [↩]