It was reported this morning that Johnson & Johnson (NYSE:JNJ) beat analyst expectations with their report of second quarter earnings. The company found success with prescription drugs, while consumer product growth lagged.
Johnson & Johnson has been a part of people's lives for 127 years and a valuable part of their investments for more than 65 years. Founded in 1886, we listed our shares on the New York Stock Exchange for public investors in 1944.
During our history, we have built the most comprehensive base of health care businesses in the world, generating approximately 70 percent of our revenues from No. 1 or No. 2 global leadership positions in our respective markets.
Our consistent performance has enabled us to deliver an exceptional track record of growth that few, if any, companies can claim: 29 consecutive years of adjusted earnings increases; and 51 consecutive years of dividend increases. Over the last 10 years, Johnson & Johnson stock generated a 5.5 percent total return for investors compared to a 7.1 percent total return for the S&P 500
J&J opened up this morning, breaking through its previous 52 week high of $90.81 and currently trading at $91.17.
J&J has been single-handedly one of the best stocks to have been in over the last fifty years. It's a consistent dividend payer and has risen almost 300% in the last ten years. In the last twelve months, it's returned an astounding 33%.
CNBC.com reported on J&J's earnings:
The diversified health-care company said on Tuesday that it earned $3.8 billion, or $1.33 per share. That compared with $1.41 billion, or 50 cents per share, in the year-earlier period, when J&J took $2.2 billion in charges for the writedown of research assets, litigation expenses and merger-related costs.
Excluding special items, J&J earned $1.48 per share, up from $1.30 a share in the year-earlier period.
Analysts had expected the company to report earnings excluding items of $1.39 a share on $17.71 billion in revenue, according to a consensus estimate from Thomson Reuters.
There's a few reasons to be bullish on J&J, even at its 52 week high and on the back end of great earnings.
First, J&J's dividend yield is great - they payout right around 3% annually. Dividends at the level they are at are generally accepted as safe - meaning there's no risk of the dividends not continuing to grow at the rate they have (or be lowered) in the future. Valuentum speaks about this in their cash flow analysis of the company:
We measure the safety of the dividend in a unique but very straightforward fashion. As many know, earnings can fluctuate in any given year, so using the payout ratio in any given year has some limitations. Plus, companies can often encounter unforeseen charges, which makes earnings an even less-than-predictable measure of the safety of the dividend in any given year. We know that companies won't cut the dividend just because earnings have declined or they had a restructuring charge that put them in the red for the quarter (year).
The first few spots I read about J&J's earnings today failed to mention that they had raised future guidance, which surprised me. It jumped out at me immediately after reading through the filing this morning. Bullish on the future? Put another check in the "reasons to be bullish" column.
The company, in its 8-K filing out today, also raised its guidance:
"Our strong second-quarter results reflect the progress we've made against our near-term priorities of delivering on our financial commitments, restoring a reliable supply of over-the-counter products to consumers, continuing the successful integration of Synthes and building on the momentum in our pharmaceutical business," said Alex Gorsky, Chairman and Chief Executive Officer. "Our talented colleagues at Johnson & Johnson continue to bring meaningful innovations to patients and consumers around the world and have positioned us well to deliver sustainable growth.
The Company increased its earnings guidance for full-year 2013 to $5.40 - $5.47 per share. The Company's guidance excludes the impact of special items.
Also, from the bullish camp, is the old adage "the trend is your friend". J&J has one of the most impressive long-term charts you're going to see:
Over 600% in the last 20 years? Not a bad way to have your money positioned. With this type of credibility and foundation, investors are likely to continue to pour money into J&J (especially as it's a Dow component) and J&J is likely to be a staple stock for millions of portfolios for many years to come. Holding this stock is like having a nice, warm security blanket covering your portfolio.
As you can clearly see from the chart above, the company doesn't seem to be susceptible to macro market shifts or corrections. If you look at a chart of the company since its inception, it has constantly grown regardless of major market pullbacks, corrections, recessions and depressions. This makes J&J not only a great hold for income, but as part of a hedge against other Dow components.
QTR's Analysis : Still a Safe Buy
The company has a $256 billion market cap and P/E ratio of 24.6, indicating that the investing public has set the bar high in terms of expectations for continued future growth.
UtahPeoplesPost.com commented on analyst's contentions of JNJ:
A number of research firms have recently commented on JNJ. Analysts at Barclays Capital reiterated an "overweight" rating on shares of Johnson & Johnson in a research note to investors on Tuesday, July 9th. They now have a $95.00 price target on the stock. On the ratings front, analysts at Jefferies Group reiterated a "hold" rating on shares of Johnson & Johnson in a research note to investors on Monday, July 8th. They now have a $91.00 price target on the stock. Finally, analysts at Argus raised their price target on shares of Johnson & Johnson from $80.00 to $96.00 in a research note to investors on Monday, July 8th. They now have a "buy" rating on the stock.
Barclays calls it "overweight" and issues a price target $5 above its current 52 week high. Not quite sure I understand that.
The main bearish argument around the company is the fact that it's trading at it's all time high and that there are analysts that are starting to turn and look at J&J from "the other side of the coin".
With some cases, I've learned recently not to lend too much credence to P/E ratios and companies trading at their 52 week highs. Netflix (NASDAQ:NFLX) and LinkedIn (NYSE:LNKD) taught me this lesson over the last few years - these stocks run when they're ready, regardless of the valuation. J&J is similar in that respect, that I feel it's always going to be a staple stock and always going to be in demand. At some point, $40 was J&J's 52 week high - wish you had bought then? I do.
QTR reiterates extremely bullish sentiment with J&J, an income generating recession proof safety stock, especially for the long term. Best of luck to all investors.