Wednesday 12 March 2014

Analysis of Johnson & Johnson

An American pharmaceuticals and consumer products company

Company: Johnson & Johnson

Business: An American pharmaceuticals and consumer products company. They are dividend into three pillars with: Consumer Healthcare, Medical Devices & Diagnostics and Pharmaceuticals. To mention a few of their products: Aveeno, Listerine (which I use myself when I have been a bad boy and eaten too much sweets), Neutrogena, Xarelto, OneTouch, Baby Care, Doxil etc. For the full list of brands and products please look here. They have over 250 companies underneath the Johnson & Johnson umbrella.

Active: They are present in over 60 countries all over the world.

P/E: 19.4

contrarian values of P/E, P/B, ROE as well as dividend

The P/E is far too high for me with 19.4 and the P/B is also too high with 3.6 which gives a very clear no go from Graham! The earnings to sales are great with 19% and the ROE is also great with 18.7%. Like many American company they have large savings so the book to debt is at an excellent ratio of 1.3. In the last five years they have had a yearly growth of 2.9% which is ok but not more and this gives us a motivated P/E of 13 to 15 which means that Johnson & Johnson is today slightly over valued by the market. Since they have a pretty large pharmaceutical part they are investing heavy in R&D and this investment represents almost 60% of their earnings which is high but will also secure them for the future. They pay an ok dividend of 2.8% which represents 54% of their earnings so there is no reason to decrease the dividend further if they can at least keep these earnings coming.

Conclusion: Grahams says no and at the current price also I say no to Johnson & Johnson today. A great company that are currently being traded at a slightly too high price. I see no reason to buy into it but on the other hand if I would have owned the shares I would see no reason to sell it since it is not yet that overvalued.

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