If you have ever been to a grocery store then you have seen the name Johnson & Johnson. With a market cap of over $170 billion dollars, Johnson & Johnson is one of the largest manufacturing companies in the United States. Johnson & Johnson make pharmaceutical products, health care products, consumer staples and medical devices. You name it and Johnson & Johnson make it. The company is famous for its lotions, shampoos, soaps, aspirin, bandages, and beauty products.
Johnson & Johnson has the benefit of competing in several different sectors. The company makes products that consumers need during economic booms and troughs. Johnson & Johnson has many competitors since the company competes in so many different sectors. Its chief competitors in the consumer staple sector are Proctor & Gamble, Unilver, and Kimberly Clark. In the healthcare sector, J&J’s competitors are Eli Lily, Abbott Labs, and Novartis.
King Of Industry
Johnson & Johnson is the industry king with revenues of over $62 billion dollar and a net profit approaching $14 billion dollars. This is the very definition of a cash cow with nearly $18 billion dollars in free cash flow this year alone. The firm has a fantastic balance sheet with $22 billion dollars in cash and just $12 billion dollars in debt. J&J has $8 per share in cash alone. It’s rare that you find a company with nearly twice as much cash as debt on its balance sheet.
Quarterly earnings are up 2.2% from the previous year. Revenue growth was down slightly at 0.70% last quarter. That’s not significant enough to be concerned about. Over the past 5 years Johnson & Johnson has been able to grow earnings at a stable 7% clip. That’s right in line with future earnings projections of 6%. Margins were excellent with the company sporting a 26% operating margin and a 21% profit margin. Return on equity was high at 25% and return on equity was average at 10%.
Shares currently trade at 12.5 times next year’s earnings. That’s two times the projected earnings growth. The stocks trades at 3 times book value and 2.7 times sales. That’s expensive for the pharmaceuticals industry but cheap for the consumer staples sector. The stock normally trades at a premium valuation because of its safety and steady growth potential.
Johnson & Johnson is attractive to fixed income investors because of its great credit rating and outstanding dividend. Johnson & Johnson has increased its cash dividend for 48 consecutive years. The company is currently paying a $2.16 dividend which is a 3.40% yield. This is much higher than the 5 year historical yield of 2.60%. The dividend is easily sustainable with a dividend payout rate of 42%. The chances are very good that Johnson & Johnson will be increasing its dividend against this year for the 49th consecutive year.