Johnson & Johnson (NYSE:JNJ) reported its Q1 results pre-market on April 19th as Seeking Alpha has covered here. Earnings per share came in above the consensus while revenue was a little short. But what caught our attention is the strength of pretty much all the business segments, discounting the currency fluctuations.
As we wrote in a previous article of ours, it's unfair to tag this company as just another pharmaceutical. The truth is, Johnson & Johnson has at least seven components that each contribute a minimum of 10% to the net income. The three major divisions: Consumer, Pharmaceutical, and Medical Devices all showed strength as highlighted below. Consumer division is the only one that showed a slight weakness but here too the usual suspects like Tylenol, Listerine, and Motrin all did well. If you are worried about any particular segment or product's weakness, keep in mind that Johnson & Johnson is still the #1 or #2 name in pretty much all its markets.
As a result of the strength shown in the first quarter, the company has increased its 2016 EPS estimate to up to $6.68. That gives the stock a forward estimate of 16 based on the current share price of $111. While some investors might feel that is a little too high, keep in mind that the market is trading at an average of 22.
We typically like to estimate earnings for three years and look at the forward multiple for a stock we hold or like to buy. Since 2016's EPS is slated to be around $6.68, projecting a 7% EPS increase [with cost cutting] gives us a 2018 EPS of $7.65 and that represents a 2018 forward multiple of 14.
In addition, Johnson & Johnson is so steady that it is almost child's play to estimate the EPS as shown below. As suspect as analyst ratings and estimates are, the table below reeks of consistency on JNJ's part.
Source: Yahoo Finance
As repetitive as it might sound, it's hard to talk about this company without bringing its dividends into the picture. JNJ typically announces a dividend increase a week after the first quarter's earnings report. If the company sticks to its recent trend, investors can expect a dividend increase of 7% and that would put the annual dividend at $3.21 for a current yield of 2.90%. Another impressive aspect is the fact that in spite of 50 plus years of dividend growth, the forward payout ratio stands below 50%. This leaves plenty of room for the stellar dividend growth to continue.
Conclusion [Keep it Simple]:
Investing in Johnson & Johnson is simple. The company follows the same mantra. Keep it simple. Reward shareholders. Rinse and repeat. Mr. Market seems to like it. We love it.
Disclosure: I am/we are long JNJ.