Johnson & Johnson (NYSE:JNJ) is generally the dependable but unspectacular stock that keeps chugging at long at its long term growth averages. Even during the depths of the recession, the stock lost just about 30% off its peak. However, now it seems like the stock is fairly valued as analysts and the stock's trailing valuation metrics agree that that it is fairly valued. The stock is though a great defense position to anybody's portfolio and it is still off its highs of nearly $72 reached before the depths of the economic crisis, so it may have some upside. However, the upside is limited. The company does pay a great dividend of 57 cents a quarter for an annual yield of 3.5%.
The company has also been in the news recently as it announced the successor to its current CEO. On Tuesday, JNJ said that its Board named Alex Gorsky Chief Executive Officer (CEO) of the company effective April 26, 2012, the date of the Company's Annual Meeting of Shareholders. Mr. Gorsky, currently Vice Chairman of the Company's Executive Committee with responsibility for the Medical Devices & Diagnostics Group, Global Supply Chain, Health Care Compliance & Privacy and Government Affairs & Policy, succeeds Bill Weldon, who has served as Chairman and CEO of Johnson & Johnson since 2002.
Below is a closer look at the valuation metrics and other key facts.
Valuation: Johnson & Johnson's trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the valuation metrics compared to their 5 year averages. Johnson & Johnson's current P/B ratio is 2.9 and it has averaged 3.6 over the past 5 years with a high of 4.4 and low of 2.7. Johnson & Johnson's current P/S ratio is 2.7 and it has averaged 2.8 over the past 5 years with a high of 3.2 and low of 2.3. Johnson & Johnson's current P/E ratio is 18.6 and it has averaged 14.9 over the past 5 years with a high of 18.8 and low of 11.5.
Price Target: The consensus price target for the analysts who follow Johnson & Johnson is $72. That is upside of 11% from today's stock price of $65 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: There are no exact close publically traded comps for JNJ as it is so large and diversified. I decided to compare it to other large pharma stocks but this is by no means an exact comparison, mostly just something to keep in mind. JNJ is currently trading at about $65 a share with analysts expecting EPS of $5.44 next year, an earnings increase of 6% y/y, for a forward P/E ratio of 11.9. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Abbott (NYSE:ABT) is currently trading at about $56 a share with analysts expecting EPS of $5.35 next year, an earnings increase of 7% y/y, for a forward P/E ratio of 10.5.
Novartis (NYSE:NVS) is currently trading at about $57 a share with analysts expecting EPS of $5.65 next year, an earnings increase of 3% y/y, for a forward P/E ratio of 10.1. Pfizer (NYSE:PFE) is currently trading at about $21 a share with analysts expecting EPS of $2.34 next year, an earnings increase of 3% y/y, for a forward P/E ratio of 9.1. The mean forward P/E of Johnson & Johnson's competitors is 9.9 which suggests that Johnson & Johnson is overvalued relative to its publically traded competitors.
Earnings Estimates: Johnson & Johnson has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 3 cents and 9 cents from consensus estimates or about 2.5% to 7.1% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
Price Action: Johnson & Johnson is up 6.4% over the past year, outperforming the S&P 500, which is up 5.4%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $65.05 and above its 200 day moving average, which sits at $64.18.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.