Warren Buffett Stocks: Johnson & Johnson

Revealed on July third, 2022 by Felix Martinez

Berkshire Hathaway (BRK.B) has an fairness funding portfolio price greater than $360 billion as of the top of the 2022 first quarter.

Berkshire Hathaway’s portfolio is stuffed with high quality shares. You possibly can ‘cheat’ from Warren Buffett shares to seek out picks for your portfolio. That’s as a result of Buffett (and different institutional traders) are required to periodically present their holdings in a 13F Submitting.

You possibly can see all Warren Buffett shares (together with related monetary metrics like dividend yields and price-to-earnings ratios) by clicking on the hyperlink under:

Observe: 13F submitting efficiency is completely different than fund efficiency. See how we calculate 13F submitting efficiency right here.

As of March 31, 2022, Buffett’s Berkshire Hathaway owned simply over 327 thousand shares of Johnson & Johnson (JNJ) for a complete market worth exceeding $58.72 million. Johnson & Johnson at the moment constitutes over 0.02% of Berkshire Hathaway’s funding portfolio.

This text will totally study Johnson & Johnson’s prospects as an funding as we speak.

Enterprise Overview

Johnson & Johnson (JNJ), along with its subsidiaries, is engaged in researching, creating, manufacturing, and promoting varied merchandise within the well being care area worldwide. The corporate operates in three segments: Client, Pharmaceutical, and Medical Units & Diagnostics.

The corporate is headquartered in New Brunswick, New Jersey, and the buyer division is in Skillman, New Jersey. The company consists of some 250 subsidiary corporations with operations in 60 international locations and merchandise offered in over 175 international locations. Johnson & Johnson had gross sales of $93.8 billion worldwide in the course of the calendar 12 months 2021.

Johnson & Johnson’s manufacturers embrace quite a few family names of medicines and first help provides. Its well-known shopper merchandise embrace the Band-Help Model line of bandages, Tylenol drugs, Johnson’s Child merchandise, Neutrogena pores and skin, magnificence merchandise, Clear & Clear facial wash, and Acuvue contact lenses. Johnson & Johnson’s pharmaceutical arm is Janssen Prescribed drugs.

On April 19, 2022, the corporate reported first-quarter outcomes for the 2022 Fiscal Yr. Income elevated 5% to $23.4 billion however missed estimates by $210 million. Adjusted earnings-per-share of $2.67 in comparison with $2.59 within the prior 12 months was $0.10 higher than anticipated.

Adjusted internet earnings had been 3% larger than the primary quarter of final 12 months. This quarter, internet earnings had been $7,129 million in comparison with $6,924 million within the first quarter of 2021.

The Pharmaceutical section, which is JNJ’s most important section, noticed gross sales improve from $12,101 million to $12,869 million, a rise of 6.3% year-over-year. Oncology was main the best way with one other quarter of 10% development. Darzalex, treating a number of myeloma, continues to see a better market share in all areas as a result of larger uptake charges. Imbruvica, which treats lymphoma, declined yearly as a result of competitors however remained the highest therapy choice in its space.

Immunology improved by 5.2%, pushed as soon as once more by larger demand for Stelara, which treats immune-mediated inflammatory illnesses, within the areas of Crohn’s Illness and Ulcerative Colitis. Infectious Illnesses proceed to carry out effectively, displaying 30% development.

Supply: Investor Presentation

Development Prospects

The corporate’s development will come from mental property within the drug group, switching prices within the machine section, and powerful model energy from the buyer group.

The corporate has been rising earnings over the previous ten years with a 6.7% CAGR. We anticipate the corporate to proceed this development price, however a bit slower at a 6% annual price.

One other development driver of earnings will come from share buybacks. Over the previous ten years, the corporate has been lowering its excellent shares by 0.6% CARG.

One other development driver will likely be to extend gross sales within the worldwide section. AS you see under, the worldwide enterprise section makes up 52.1% of gross sales. This was elevated by 13.6% in comparison with 2020.

Supply: Investor Presentation

Aggressive Benefits & Recession Efficiency

Johnson & Johnson’s key aggressive benefit is the dimensions and scale of its enterprise. The corporate is a worldwide chief in a number of healthcare classes. Johnson & Johnson’s diversification permits it to proceed to develop even when one of many segments is underperforming. This may be seen within the final quarterly report, the place features in Medical Units and Prescribed drugs offset declines in customers.

Additionally, the corporate isn’t depending on one section. For instance, the pharmaceutical enterprise, medical machine group, and shopper merchandise symbolize near 50%, 30%, and 20% of whole gross sales, respectively. Moreover, inside every section, nobody product dominates gross sales.

Through the Nice Recession, earnings grew in 2008 by 10%, and so they grew by 2% in 2009. This speaks volumes about how resilient the corporate is. Nonetheless, in the course of the COVID-19 pandemic, the corporate did see earnings lower by 7% in comparison with 2019. Nonetheless, it bounced again sturdy with a 22% improve in earnings for 2021, which was larger than 2019.

Valuation & Anticipated Returns

We anticipate the corporate to extend 2022 earnings by 5% in comparison with 2021. Thus, we anticipate that the corporate will make $10.25 per share.

The present worth of $179.50 provides us a PE ratio of 17.9x earnings. That is excessive in comparison with its ten-year common of 16.8x earnings. This offers traders a slight headwind in anticipated whole return.

The corporate dividend yield is 2.5%, which is larger than the S&P 500 however a bit decrease than the corporate’s five-year common of two.6%.

Total, we anticipate the corporate to provide a complete return of about 8% yearly over the following 5 years.

Last Ideas

Johnson & Johnson reported a gentle quarter; one thing shareholders have seen many occasions over time. This continued development has enabled the corporate to increase its dividend development streak to 6 many years. Johnson & Johnson stays on monitor to divest its shopper enterprise to deal with the faster-growing pharmaceutical and medical machine segments.

Thus, we price this inventory as a maintain proper now and wish to see it decrease the 16.5x earnings.