Editor-DN
Johnson & Johnson (JNJ) is one of the stocks that Zacks.com visitors have been watching recently. Therefore, it may be a good idea to review some of the factors that may affect the near-term performance of a stock.
Over the past month, shares of the world’s largest healthcare products maker have returned +8.1%, compared to a -5.9% change for the Zacks S&P 500 Composite. During that period, the Zacks Large Cap Pharmaceuticals industry, which includes Johnson & Johnson, has lost 3.9%. Now the important question is: What could be the future direction of the stock?
Although media reports or rumors about a significant change in a company’s business prospects usually cause its stock to trend and cause immediate price changes, there are always some underlying factors that ultimately drive buy and hold decisions. Let’s move on.
Revenue Estimates Revision
Rather than focus on anything else, we at Zacks prefer to examine the change in a company’s earnings estimates. This is because we believe the fair value of its stock is determined by the present value of its future earnings.
Our analysis is primarily based on how sell-side analysts covering the stock are revising their earnings estimates keeping in mind the latest business trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when a stock’s fair value is higher than its current market value, investors buy the stock, causing its price to move upward. Because of this, empirical studies indicate a strong correlation between earnings estimate revisions and trends in short-term stock price movements.
For the current quarter, Johnson & Johnson is expected to post earnings per share of $2.26, indicating a change of -15% from the year-ago quarter. The Zacks Consensus Estimate has changed -16.8% over the past 30 days.
The consensus earnings estimate of $10.07 for the current fiscal year indicates a year-over-year change of +1.5%. This estimate has changed -5.2% over the past 30 days.
For the next fiscal year, the consensus earnings estimate of $10.63 represents a +5.5% change from the estimate Johnson & Johnson reported a year ago. Over the past month, estimates have changed by -2.6%.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more definitive picture of near-term stock price direction, as it effectively harnesses the power of revisions to earnings estimates. does. Due to the size of the recent change in consensus estimates, along with three other factors related to earnings estimates, Johnson & Johnson is assigned a Zacks Rank #4 (Sell).
The chart below shows the evolution of the company’s forward 12-month consensus EPS estimates:
12 months EPS
Increase in expected income
Although revenue growth is the highest indicator of a company’s financial health, nothing happens if a business is unable to grow its revenue. After all, it is almost impossible for a company to grow its revenue over a long period of time without growing its revenue. Therefore, it is important to know the potential revenue growth of the company.
In Johnson & Johnson’s case, the consensus sales estimate of $22.17 billion for the current quarter points to a year-over-year change of +3.9%. Estimates of $88.51 billion and $90.91 billion for the current and next fiscal years indicate changes of -4.9% and +2.7%, respectively.
Last reported results and surprise history
Johnson & Johnson reported revenue of $22.45 billion in the last reported quarter, representing a year-over-year change of -12.1%. EPS of $2.82 for the same period compares to $2.80 a year ago.
The reported revenue represented a +0.43% surprise, compared to the Zacks Consensus Estimate of $22.35 billion. EPS surprise was +4.06%.
The company beat consensus EPS estimates in each of the last four quarters. The company topped consensus earnings estimates by three times in the period.
Value
Without considering stock valuation, no investment decision can be made effectively. In predicting a stock’s future price performance, it is critical to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
By comparing a company’s current values such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), historical values help determine whether the Whether the stock is undervalued, overvalued, or undervalued, comparing the company with its peers on these parameters 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 measures both traditional and unconventional valuations) organizes stocks into five groups from A to F (Better than AB; BC is better; etc.), this is helpful in identifying whether a stock is overvalued, correctly valued, or temporarily undervalued.
Johnson & Johnson is rated C on this front, indicating that it is trading on par with its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Result
The facts discussed here and many other information on Zacks.com can help determine whether or not it’s worth paying attention to market volatility about Johnson & Johnson. However, its Zacks Rank #4 suggests it may underperform the broader market in the near term.
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Johnson & Johnson (JNJ): Free Stock Analysis Report
