Is Trending Stock Johnson & Johnson (JNJ) a buy it now?

Johnson & Johnson (JNJ) is one of the most watched stocks by Zacks.com visitors lately. So it might be worth looking at some of the factors that could affect the stock’s short-term performance.

Shares of the world’s largest maker of healthcare products have returned -2.5% over the past month compared to the -10.7% change in the Zacks S&P 500 composite. Industry Zacks Large Cap Pharmaceuticals, to which belongs Johnson & Johnson, lost 7.5% over this period. Now the key question is: where could the stock be heading in the near term?

Although press releases or rumors about a substantial change in a company’s trading outlook will usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.

Johnson & Johnson is expected to post earnings of $2.55 per share for the current quarter, representing a year-over-year change of +2.8%. Over the past 30 days, the Zacks consensus estimate has changed by -4.5%.

The current year earnings consensus estimate of $10.20 indicates a year-over-year change of +4.1%. This estimate has changed by -2.8% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $10.75 indicates a change of +5.4% from what Johnson & Johnson is expected to report a year ago. Over the past month, the estimate has changed by +107.5%.

With an impressive externally audited track record, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance, as it effectively harnesses the power of earnings estimate revisions. . The magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, resulted in a Zacks #3 (Hold) ranking for Johnson & Johnson.

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Revenue Growth Forecasts

While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.

In the case of Johnson & Johnson, the consensus sales estimate of $23.79 billion for the current quarter indicates a year-over-year change of +2%. Estimates of $96.5 billion and $100.85 billion for the current and next fiscal year indicate changes of +2.9% and +4.5%, respectively.

Latest reported results and history of surprises

Johnson & Johnson posted revenue of $23.43 billion last quarter, representing a +5% year-over-year change. EPS of $2.67 for the same period versus $2.59 a year ago.

Compared to the Zacks consensus estimate of $23.75 billion, reported revenue is a surprise -1.37%. Surprise EPS was +2.69%.

The company has exceeded consensus EPS estimates in each of the past four quarters. The company exceeded consensus revenue estimates only once during this period.

Evaluation

Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.

While comparing the current values ​​of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , along with its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of the stock price .

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on.), which is useful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.

Johnson & Johnson is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether it’s worth paying attention to the market buzz about Johnson & Johnson. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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