BUY BUY BUY BUY: Johnson & Johnson

July 19, 2017
NYSE: JNJ
JOHNSON & JOHNSON

BUY HOLD SELL
BUY
RATING SINCE 03/30/2012
A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F TARGET PRICE $155.30
Annual Dividend Rate Annual Dividend Yield Beta Market Capitalization 52-Week Range Price as of 7/18/2017
$3.36 2.49% 0.78 $362.2 Billion $109.32-$137.00 $134.46
Sector: Health Care Sub-Industry: Pharmaceuticals Source: S&P

Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years
JNJ BUSINESS DESCRIPTION
Johnson & Johnson, together with its subsidiaries, 160
researches and develops, manufactures, and sells TARGET
TARGET PRICE
TARGETPRICE
TARGET $155.30
PRICE$155.30
PRICE $155.30
$155.30
150
various products in the health care field worldwide.
It operates through three segments: Consumer, 140
Pharmaceutical, and Medical Devices.
130
STOCK PERFORMANCE (%)
3 Mo. 1 Yr. 3 Yr (Ann) 120
Price Change 10.37 9.19 9.72
110
GROWTH (%)
100
Last Qtr 12 Mo. 3 Yr CAGR
Revenues 1.93 2.33 -0.46 90
Net Income -4.26 8.70 1.65 Rating History
EPS -2.10 10.24 2.98 BUY
RETURN ON EQUITY (%) Volume in Millions

100
JNJ Ind Avg S&P 500
Q2 2017 NA 11.96 13.16 50
Q2 2016 20.73 14.64 11.83
0
Q2 2015 22.64 23.50 13.71 2015 2016 2017
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
P/E COMPARISON
RECOMMENDATION
We rate JOHNSON & JOHNSON (JNJ) a BUY. This is based on the convergence of positive investment
measures, which should help this stock outperform the majority of stocks that we rate. The company's
strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past
year and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par
growth in net income.
HIGHLIGHTS
22.71 89.71 24.54 Despite its growing revenue, the company underperformed as compared with the industry average of 6.2%.
Since the same quarter one year prior, revenues slightly increased by 1.9%. This growth in revenue does not
JNJ Ind Avg S&P 500
appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
EPS ANALYSIS¹ ($) JOHNSON & JOHNSON' earnings per share from the most recent quarter came in slightly below the year
earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for
EPS growth in the coming year. During the past fiscal year, JOHNSON & JOHNSON increased its bottom line
by earning $5.93 versus $5.49 in the prior year. This year, the market expects an improvement in earnings
($7.11 versus $5.93).
Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the
company's weak earnings results. Turning our attention to the future direction of the stock, it goes without
Q1 1.53
Q2 1.61
Q3 1.20
Q4 1.15
Q1 1.59
Q2 1.43
Q3 1.53
Q4 1.38
Q1 1.61
Q2 1.40
saying that even the best stocks can fall in an overall down market. However, in any other environment, this
stock still has good upside potential despite the fact that it has already risen in the past year.
2015 2016 2017
NA = not available NM = not meaningful
The gross profit margin for JOHNSON & JOHNSON is rather high; currently it is at 69.16%. Regardless of
JNJ's high profit margin, it has managed to decrease from the same period last year. Despite the mixed
1 Compustat fiscal year convention is used for all fundamental
data items. results of the gross profit margin, JNJ's net profit margin of 20.31% compares favorably to the industry
average.
The change in net income from the same quarter one year ago has exceeded that of the Pharmaceuticals
industry average, but is less than that of the S&P 500. The net income has decreased by 4.3% when compared
to the same quarter one year ago, dropping from $3,997.00 million to $3,827.00 million.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy Report Date: July 19, 2017 PAGE 1
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved.
July 19, 2017
NYSE: JNJ
JOHNSON & JOHNSON

Sector: Health Care Pharmaceuticals Source: S&P
$3.36 2.49% 0.78 $362.2 Billion $109.32-$137.00 $134.46
PEER GROUP ANALYSIS INDUSTRY ANALYSIS

REVENUE GROWTH AND EBITDA MARGIN*
US pharmaceutical companies are involved in the discovery, manufacturing, distribution, and research of
generic and branded drugs. The industry accounts for 27.3% of the healthcare sector and is capital-intensive
20%
BMY with exorbitant R&D costs. Most companies are mature and characterized by high margins and higher
FA
dividend pay-outs. Major players include Pfizer (PFE), Bristol-Myers Squibb (BMY), Abbott Laboratories (ABT),
VO
and Eli Lilly (LLY). The industry employs more than 400,000 in the US. The 50 largest companies control over
RA
BL
80% of the market.

E
The industry faces unprecedented challenges from stringent environmental regulations and patent
LLY
expirations on billion-dollar products. Industry experts believe that generic competition will wipe out more
AGN than $60 billion from US industry sales over the next five years as more than three dozen drugs lose patent
Revenue Growth (TTM)
PFE protection. Merck lost a $3 billion patent protection for its osteoporosis drug Fosamax in 2008 while Eli Lilly
MRK
lost an estimated 90% of Zyprexa sales. The FDA is rejecting more drugs on safety concerns and a lack of
compelling evidence of definite advancement from existing drugs.
UN
FA
VO
-10%
The US government enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) in
RA
B
AZN 2003 to provide prescription drug benefits to the elderly and disabled. Medicare Part D, a component of MMA,
LE
28% 46% which came into effect in 2006, altered the revenue model of pharma companies.
EBITDA Margin (TTM)
Companies with higher EBITDA margins and Horizontal and vertical integration has created health maintenance organizations (HMOs) and pharmacy
revenue growth rates are outperforming companies benefit management firms (PBMs). In order to cut costs and remain competitive, the US pharma majors have
with lower EBITDA margins and revenue growth been outsourcing research to low-cost service providers in India and China.
rates. Companies for this scatter plot have a market
capitalization between $84.8 Billion and $362.2 The promising era of personalized medicine has begun. Dozens of exciting new drugs for the treatment of dire
Billion. Companies with NA or NM values do not diseases such as cancer, AIDS, Parkinson's, and Alzheimer's are either on the market or are very close to
appear. regulatory approval. The industry has shifted its focus from blockbuster drugs (chemistry-based drugs) to
specialized products, geared towards specific disorders. Growth in American drug purchases will continue to
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization. be supported by a rapidly aging population, inflation, and the introduction of expensive new drugs.
REVENUE GROWTH AND EARNINGS YIELD

PEER GROUP: Pharmaceuticals
20%
BMY Recent Market Price/ Net Sales Net Income

Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M)
FA
VO
JNJ JOHNSON & JOHNSON 134.46 362,213 22.71 72,531.00 16,335.00

RA
LLY LILLY (ELI) & CO 83.70 92,354 40.43 21,585.30 2,186.70

BL
E
BMY BRISTOL-MYERS SQUIBB CO 54.74 90,185 19.01 19,965.00 4,836.00

AGN ALLERGAN PLC 245.73 87,017 NM 14,744.20 12,152.50
LLY
AZN ASTRAZENECA PLC 33.51 84,832 25.01 24,180.00 3,390.00
AGN
PFE NVO NOVO NORDISK A/S 43.19 84,763 20.18 15,797.06 5,397.98
JNJ
Revenue Growth (TTM)
MRK NVS NOVARTIS AG 84.77 221,830 31.87 48,457.00 6,367.00

NVS SNY GSK GLAXOSMITHKLINE PLC 42.43 205,910 51.12 35,169.00 2,030.96
UN
FA
GSK NVO PFE PFIZER INC 33.36 199,087 28.03 52,598.00 7,298.00
VO
-10%
RA
MRK MERCK & CO 62.41 170,702 40.26 39,929.00 4,346.00

B
AZN
LE
SNY SANOFI 47.74 120,377 25.26 37,111.90 9,829.77

-6% 6%
The peer group comparison is based on Major Pharmaceuticals companies of comparable size.
Earnings Yield (TTM)
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -6.8% and
18.1%. Companies with NA or NM values do not
appear.
July 19, 2017
NYSE: JNJ
JOHNSON & JOHNSON

$3.36 2.49% 0.78 $362.2 Billion $109.32-$137.00 $134.46
COMPANY DESCRIPTION STOCK-AT-A-GLANCE

Johnson & Johnson, together with its subsidiaries, Below is a summary of the major fundamental and technical factors we consider when determining our
researches and develops, manufactures, and sells overall recommendation of JNJ shares. It is provided in order to give you a deeper understanding of our
various products in the health care field worldwide. It rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
operates through three segments: Consumer, important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
Pharmaceutical, and Medical Devices. The Consumer understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
segment offers baby care products under the valuation. Please refer to our Valuation section on page 5 for further information.
JOHNSON'S brand; oral care products under the
LISTERINE brand; beauty products under the AVEENO, FACTOR SCORE
CLEAN & CLEAR, DABAO, JOHNSON'S Adult, LE PETITE
MARSEILLAIS, NEUTROGENA, RoC, and OGX brands; Growth out of 5 stars 4.0
over-the-counter medicines, including acetaminophen Measures the growth of both the company's income statement and weak strong
products under the TYLENOL brand; cold, flu, and allergy cash flow. On this factor, JNJ has a growth score better than 70% of the
products under the SUDAFED brand; allergy products stocks we rate.
under the BENADRYL and ZYRTEC brands; ibuprofen
products under the MOTRIN IB brand; and acid reflux
products under the PEPCID brand. This segment also
Total Return out of 5 stars 4.5
provides women's health products, such as sanitary pads Measures the historical price movement of the stock. The stock weak strong
under the STAYFREE and CAREFREE brands, and performance of this company has beaten 80% of the companies we
tampons under the o.b. brand; wound care products cover.
comprising brand adhesive bandages under the
BAND-AID brand and first aid products under the Efficiency out of 5 stars 5.0
NEOSPORIN brand. The Pharmaceutical segment offers Measures the strength and historic growth of a company's return on weak strong
various products in the areas of immunology, infectious invested capital. The company has generated more income per dollar of
diseases and vaccines, neuroscience, oncology, and capital than 90% of the companies we review.
cardiovascular and metabolic diseases. The Medical
Devices segment provides orthopaedic products; general
surgery, biosurgical, endomechanical, and energy
Price volatility out of 5 stars 4.5
products; electrophysiology products to treat Measures the volatility of the company's stock price historically. The weak strong
cardiovascular disease; sterilization and disinfection stock is less volatile than 80% of the stocks we monitor.
products to reduce surgical infection; diabetes care
products that include blood glucose monitoring and Solvency out of 5 stars 5.0
insulin delivery products; and disposable contact lenses. Measures the solvency of the company based on several ratios. The weak strong
The company markets its products to general public, company is more solvent than 90% of the companies we analyze.
retail outlets and distributors, wholesalers, hospitals,
and health care professionals for prescription use, as Income out of 5 stars 4.0
well as for use in the professional fields by physicians,
Measures dividend yield and payouts to shareholders. The company's weak strong
nurses, hospitals, eye care professionals, and clinics.
dividend is higher than 70% of the companies we track.
Johnson & Johnson was founded in 1885 and is based in
New Brunswick, New Jersey.
THESTREET RATINGS RESEARCH METHODOLOGY
JOHNSON & JOHNSON
One Johnson & Johnson Plaza TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
New Brunswick, NJ 08933 price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
USA perform against a general benchmark of the equities market and interest rates. While our model is
Phone: 732-524-0400 quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
http://www.jnj.com expected equities market returns, future interest rates, implied industry outlook and forecasted company
Employees: 126000 earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
July 19, 2017
NYSE: JNJ
JOHNSON & JOHNSON

$3.36 2.49% 0.78 $362.2 Billion $109.32-$137.00 $134.46
Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

IBES consensus estimates are provided by Thomson Financial JOHNSON & JOHNSON's gross profit margin for the second quarter of its fiscal year 2017 has decreased
when compared to the same period a year ago. Even though sales increased, the net income has decreased.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
1.78 7.11 E 7.76 E

Q3 FY17 2017(E) 2018(E)
INCOME STATEMENT
Q2 FY17 Q2 FY16
Net Sales ($mil) 18,839.00 18,482.00
EBITDA ($mil) NA 6,613.00
EBIT ($mil) 5,482.00 5,713.00
Net Income ($mil) 3,827.00 3,997.00
BALANCE SHEET
Q2 FY17 Q2 FY16
Cash & Equiv. ($mil) NA 42,856.00
Total Assets ($mil) NA 139,814.00
Total Debt ($mil) NA 26,243.00
Equity ($mil) NA 72,473.00
PROFITABILITY
Q2 FY17 Q2 FY16
Gross Profit Margin 69.16% 76.04%
EBITDA Margin NA 35.78%
Operating Margin 29.10% 30.91%
Sales Turnover NA 0.51
Return on Assets NA 10.74%
Return on Equity NA 20.73%
DEBT
Q2 FY17 Q2 FY16
Current Ratio NA 3.08
Debt/Capital NA 0.27
Interest Expense NA 190.00
Interest Coverage NA 30.07
SHARE DATA
Q2 FY17 Q2 FY16
Shares outstanding (mil) 2,695 2,738
Div / share 0.84 0.80
EPS 1.40 1.43
Book value / share NA 26.47
Institutional Own % NA NA
Avg Daily Volume 5,609,440 7,097,820
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
July 19, 2017
NYSE: JNJ
JOHNSON & JOHNSON

$3.36 2.49% 0.78 $362.2 Billion $109.32-$137.00 $134.46
RATINGS HISTORY VALUATION

Our rating for JOHNSON & JOHNSON has not BUY. The current P/E ratio indicates a significant discount compared to an average of 89.71 for the
changed since 3/30/2012. As of 7/18/2017, the stock Pharmaceuticals industry and a value on par with the S&P 500 average of 24.54. The price-to-sales ratio is
was trading at a price of $134.46 which is 1.9% well above the S&P 500 average, but well below the industry average. After reviewing these and other key
below its 52-week high of $137.00 and 23.0% above valuation criteria, JOHNSON & JOHNSON proves to trade at a discount to investment alternatives within the
its 52-week low of $109.32. industry.
2 Year Chart
$140 Price/Earnings 1 2 3 4 5 Price/CashFlow 1 2 3 4 5
BUY: $100.08
premium discount premium discount

JNJ 22.71 Peers 89.71 JNJ NA Peers 20.45
$120 • Discount. A lower P/E ratio than its peers can • Neutral. The P/CF ratio is the stock’s price divided
signify a less expensive stock or lower growth by the sum of the company's cash flow from
$100 expectations. operations. It is useful for comparing companies
• JNJ is trading at a significant discount to its peers. with different capital requirements or financing
structures.
2015 2016 • Ratio not available.
Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5

premium discount premium discount
MOST RECENT RATINGS CHANGES JNJ 17.34 Peers 16.52 JNJ 1.15 Peers 0.68
Date Price Action From To • Premium. A higher price-to-projected earnings ratio • Premium. The PEG ratio is the stock’s P/E divided by
7/17/15 $100.08 No Change Buy Buy than its peers can signify a more expensive stock the consensus estimate of long-term earnings
Price reflects the closing price as of the date listed, if available or higher future growth expectations. growth. Faster growth can justify higher price
• JNJ is trading at a premium to its peers. multiples.
• JNJ trades at a significant premium to its peers.
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS Price/Book 1 2 3 4 5 Earnings Growth 1 2 3 4 5
(as of 7/18/2017) premium discount lower higher
JNJ NA Peers 11.85 JNJ 10.24 Peers 18.32
43.85% Buy - We believe that this stock has the • Neutral. A lower price-to-book ratio makes a stock • Lower. Elevated earnings growth rates can lead to
opportunity to appreciate and produce a total return of more attractive to investors seeking stocks with capital appreciation and justify higher
more than 10% over the next 12 months. lower market values per dollar of equity on the price-to-earnings ratios.
balance sheet. • However, JNJ is expected to significantly trail its
30.62% Hold - We do not believe this stock offers • Ratio not available. peers on the basis of its earnings growth rate.
conclusive evidence to warrant the purchase or sale of
shares at this time and that its likelihood of positive total Price/Sales 1 2 3 4 5 Sales Growth 1 2 3 4 5
return is roughly in balance with the risk of loss. premium discount lower higher
JNJ 5.00 Peers 12.45 JNJ 2.33 Peers 6.07
25.54% Sell - We believe that this stock is likely to • Discount. In the absence of P/E and P/B multiples, • Lower. A sales growth rate that trails the industry
decline by more than 10% over the next 12 months, with the price-to-sales ratio can display the value implies that a company is losing market share.
the risk involved too great to compensate for any investors are placing on each dollar of sales. • JNJ significantly trails its peers on the basis of
possible returns. • JNJ is trading at a significant discount to its sales growth
industry on this measurement.
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via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as
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July 19, 2017

JOHNSON & JOHNSON

Sector: Health Care Sub-Industry: Pharmaceuticals Source: S&P

RETURN ON EQUITY (%) Volume in Millions

JOHNSON & JOHNSON

PEER GROUP ANALYSIS INDUSTRY ANALYSIS

80% of the market.

REVENUE GROWTH AND EARNINGS YIELD

BMY Recent Market Price/ Net Sales Net Income

JNJ JOHNSON & JOHNSON 134.46 362,213 22.71 72,531.00 16,335.00

LLY LILLY (ELI) & CO 83.70 92,354 40.43 21,585.30 2,186.70

BMY BRISTOL-MYERS SQUIBB CO 54.74 90,185 19.01 19,965.00 4,836.00

MRK NVS NOVARTIS AG 84.77 221,830 31.87 48,457.00 6,367.00

MRK MERCK & CO 62.41 170,702 40.26 39,929.00 4,346.00

SNY SANOFI 47.74 120,377 25.26 37,111.90 9,829.77

JOHNSON & JOHNSON

COMPANY DESCRIPTION STOCK-AT-A-GLANCE

JOHNSON & JOHNSON

Consensus EPS Estimates² ($) FINANCIAL ANALYSIS

1.78 7.11 E 7.76 E

JOHNSON & JOHNSON

RATINGS HISTORY VALUATION

premium discount premium discount

Price/Projected Earnings 1 2 3 4 5 Price to Earnings/Growth 1 2 3 4 5

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