How to Valuate Johnson and Johnson Stock
Whether you are buying or selling J&J stock, there are several factors to consider when valuing your position. For example, the PEG ratio, the EBITDA margin, and the dividend payout are essential when determining the value of a company’s stock. There is also the question of litigation expenses.
Using the PEG ratio, a financial analyst can determine a business’s stock’s value by comparing the earnings per share growth rate and its P/E ratio. This is a popular metric that analysts commonly use to evaluate the performance of a company’s stock.
The PEG ratio is not the only valuation metric worth looking into. The P/E ratio is a well-known indicator of a company’s profitability, but it’s not the best measure of a firm’s value.
The PEG ratio is a better indicator of a company’s valuation, but it cannot be easy to calculate. The PEG ratio calculates a company’s P/E by its EPS growth rate for the past twelve months. The P/E ratio can be derived from the most recent share price or the stock’s average cost per share.
Despite being a global leader in the pharmaceutical industry, Johnson and Johnson’s stock has not been doing all that well over the last several months. While its balance sheet remains sound, the company faces some headwinds in its medical devices business. However, the good news is that the division has rebounded over the last few quarters.
It’s worth noting that J&J has a very diversified business model. The company develops various healthcare products and sells them under several brands. Among these are consumer health, skin health/beauty products, ibuprofen, oral care, and baby care.
The game’s name is the EV / EBITDA (enterprise value/earnings before interest, taxes, depreciation, and amortization) ratio. This ratio measures how much money a company is worth in the eyes of both debt and equity holders.
Despite the bad press and legal proceedings about baby powder, Johnson & Johnson has a nearly half-trillion-dollar valuation. He is still a profitable business company that could face mounting litigation expenses in the future.
According to the company’s annual report for the fiscal year ending in 2020, J&J spent over $5 billion on litigation. The company cited talc-related lawsuits as a primary driver of its costs. The company settled more than a thousand cases and received more than a hundred million dollars in damages in the year.
The company’s profits reached nearly $15 billion in the year. The company has a net profit margin of 19 percent. Its stocks are Dividend Kings. If legal expenses continue to rise, Johnson & Johnson may lose consumers to competing brands.
Among the dividend stocks of today, Johnson & Johnson is one of the best. It has raised its dividend at a yearly rate of more than 5% for the past five years, which is impressive. The company has also made an excellent showing on the stock resurgence front. Since February 2020, the S&P 500 has rallied 32%, while Johnson & Johnson has risen by 24%.
The Dividend Payout Ratio measures how much of the company’s earnings are paid out as dividends. Johnson & Johnson has increased its annualized DPS by 6 percent for the last year. This is a sign of the company’s solid business. It’s also a good sign that Johnson & Johnson can keep paying its dividend for some time.
Valuing J&J stock
Getting a good idea of the value of Johnson and Johnson stock is not a simple task. You must consider the company’s current performance, future potential, and other factors. However, you can use public data to calculate its worth.
The first thing to consider is how much profit a company generates. You can get this information by analyzing the EBITDA. For example, the EBITDA of Johnson and Johnson is $32 billion. This ratio shows how profitable the company is.
The next step in determining the value of a company is to evaluate its competitors. This can be done by comparing the multiples of the company’s stocks to the multiples of its nearest competitors. For example, Johnson and Johnson’s P/E ratio is significantly higher than the average P/E ratio of the sector.