Search Results for: JNJ

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Johnson & Johnson (JNJ) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Johnson & Johnson is a holding company. The Company is engaged in the research and development, manufacture and sale of a range of products in the health care field. The Company has more than 265 operating companies conducting business around the world. The Company’s primary focus is products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices. The Company’s subsidiaries operate 134 manufacturing facilities occupying approximately 21.5 million square feet of floor space. The Company’s research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of JNJ – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Stage 2: Determination of Intrinsic Value

Johnson & Johnson qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only initially concerned with the high PB ratio.  The Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $4.17 in 2011 to an estimated $5.14 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 5.3% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Johnson & Johnson (JNJ)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

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Useful Links:

Most Recent Balance Sheet Figures

Earnings Per Share History

Earnings Per Share – ModernGraham History

Recommended Reading:

Other ModernGraham posts about the company

Other ModernGraham posts about related companies

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Johnson & Johnson (JNJ) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Johnson & Johnson is a holding company. The Company is engaged in the research and development, manufacture and sale of a range of products in the health care field. The Company has more than 265 operating companies conducting business around the world. The Company’s primary focus is products related to human health and well-being. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices. The Company’s subsidiaries operate 134 manufacturing facilities occupying approximately 21.5 million square feet of floor space. The Company’s research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of JNJ – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Stage 2: Determination of Intrinsic Value

Johnson & Johnson qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the high PB ratio while the Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $4.17 in 2011 to an estimated $5.18 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 4.73% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Johnson & Johnson (JNJ)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

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Useful Links:

Most Recent Balance Sheet Figures

Earnings Per Share History

Earnings Per Share – ModernGraham History

Recommended Reading:

Other ModernGraham posts about the company

Other ModernGraham posts about related companies

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

A lot of investors and analysts considering Johnson & Johnson (JNJ) are focused primarily on qualitative speculation about the company’s prospects. For example, Seeking Alpha contributor Eli Inkrot looks primarily at dividend growth prospects for the company while Alexander Poulos views the company’s exposure to the healthcare sector as an investment opportunity. However, it is critical when analyzing Akamai to consider the company’s intrinsic value in relation to its price.

In fact, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether a company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here’s a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

JNJ data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – Earnings per share has increased by at least 1/3 over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
6. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – PASS
7. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 5/5

1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
4. Dividend Record – Currently pays a dividend – PASS
5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Balance Sheet – March 2015

Earnings Per Share

Earnings Per Share – ModernGraham

Dividend History

JNJ Dividend data by YCharts

Conclusion

Johnson & Johnson passes the initial requirements of both the Enterprising Investor and the more conservative Defensive Investor. The Defensive Investor’s only initial concern is the high PB ratio while the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has seen its EPSmg (normalized earnings) rise from $4.17 in 2011 to an estimated $5.26 for 2015. This level of earnings growth does not support the market’s implied estimate for 5.27% annual growth over the next 7-10 years.

In fact, the recent earnings growth has averaged around 5.21% per year, but as a safety margin, the ModernGraham valuation model reduces the expected future growth rate slightly in order to account for the possibility in a downturn in the business. Thus, the model returns an estimate of intrinsic value falling below the market’s price, indicating that Johnson & Johnson is overvalued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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