Is Johnson & Johnson stock worth buying?

Johnson & Johnson (NYSE:JNJ) has quietly emerged as a compelling turnaround story, with its share price rising sharply in recent months and now trading at a 52-week high. Compared to a frustrating past few years for investors, the healthcare giant’s latest results underscore a rebound in growth and an improving earnings outlook.

Could stocks be a good addition to your portfolio today? Here’s what you need to know.

Stronger as we enter 2025

There are many reasons to like Johnson & Johnson, a company known for its history of innovation and strong fundamentals. A major development in recent years was the 2023 spinoff of its Consumer Health division, which included brands like Tylenol and Band-Aid, along with the creation of Kenvue as a completely independent company. Management made the decision to restructure in part to refocus the company’s efforts on its core strengths in pharmaceutical and medical technology, and that strategy appears to be paying off.

In the second quarter (for the period ended June 30), worldwide sales rose 7.1% year over year on an operating basis, excluding the impact of asset sales, currency fluctuations and the decline in COVID-19 vaccine sales. More impressive was the 10.2% increase in adjusted earnings per share to $2.82.

The momentum was driven by the Innovative Medicines segment, where operating revenues increased 8.8% compared to the second quarter of 2023. This included an 18.6% increase in sales in the Oncology group, with several cancer treatments gaining market share globally. Results from Immunotherapy treatments were also solid.

The medtech segment delivered 4.4% operating income growth despite ongoing weakness in the Chinese market. Notably, Johnson and Johnson’s acquisition of Abiomed in 2022 and the Shockwave Medical deal earlier this year are driving strong gains for the cardiovascular division.

Overall, the better-than-expected start to the year allowed management to raise its full-year revenue guidance. Johnson & Johnson now expects 2024 operating growth of 6.4% as a midpoint, down from the previous estimate of 5.8%. Perhaps even more importantly, these trends are expected to continue into 2025 with even greater profitability.

Image source: Getty Images.

Next Steps for Johnson & Johnson

Johnson & Johnson’s attractiveness as an investment opportunity comes in part from its diversified profile, although the company has begun to streamline its business away from making consumer goods.

The company notes that it maintains 25 product platforms that contribute to over $1 billion in sales. Over 65% of its revenue comes from products that are either No. 1 or No. 2 in their market categories. This global business breadth and consistent cash flow generation confirm the company’s leadership position.

The drug portfolio has several important upcoming milestones, including clinical data readouts and potential regulatory approvals, offering catalysts that could further extend the long-term growth pipeline. Notably, Johnson & Johnson’s blockbuster psoriasis and ulcerative colitis drug Tremfya recently received label expansion approval from the Food and Drug Administration (FDA) for the treatment of adults with moderate to severe ulcerative colitis. The company is pursuing a separate indication for Crohn’s disease.

Ultimately, there are many dynamic activities in the company’s development process, including innovations in the field of medical technologies, which contribute to maintaining positive prospects.

In terms of valuation, Johnson & Johnson stock is trading at about 17 times management’s 2024 earnings per share forecast as a price-to-earnings (P/E) multiple. This is well below the decade’s average for a P/E multiple of about 23. One could argue that the stock is undervalued because the market has not yet fully appreciated the company’s improved profile.

JNJ (Forward) Price to Earnings (P/E) data by YCharts.

The Big Picture for Investors

I think Johnson & Johnson stock deserves a buy rating. It’s a great company that has clearly recovered from some early challenges post-pandemic.

The potential for continued earnings growth should continue to reward shareholders. Keep in mind that Johnson & Johnson is a member of the exclusive group of Dividend Kings with a 62-year record of annual dividend increases. The current quarterly rate of $1.24 per share yields 3%, and the streak of rate hikes is likely to continue, another good reason to own the stock.

Is it worth investing $1,000 in Johnson & Johnson right now?

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Dan Victor has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.