Johnson & Johnson (NYSE:JNJ) stock, previously labeled a slow-growth “loser” pharmaceutical play, is now hot again.
Shares are up 19% since March 23. They rose almost 5% on April 14, after the company delivered a strong first quarter and said it was working on a vaccine for the novel coronavirus.
The New Brunswick, New Jersey company said it earned $5.8 billion, $2.17 per share, on revenue of $20.7 billion during the quarter. Sales were up only 3%, but profits were up over 50%, compared with a year earlier. Johnson & Johnson also increased the dividend 6.3%, to $1.01 per share.
The earnings beat analyst estimates by 30 cents per share.
Will a Covid-19 Vaccine Boost JNJ Stock?
The company’s coronavirus vaccine candidate is being manufactured “at risk,” with 600 million to 800 million doses expected to be available worldwide by early next year.
The “at risk” designation means JNJ has begun production before the final version of the vaccine is formulated. Testing will begin in September. Results should be available by year-end.
Johnson & Johnson has signed actor-journalist Lisa Ling to host The Road to a Vaccine, an eight-episode internet TV show. The company insists it is working on the vaccine on a non-profit basis.
Conservative in a Good Way
In its earnings call, Johnson & Johnson sought to downplay its relative success, lowering guidance for the rest of the year. The company now expects full-year revenue of $77.5 billion, down 4% from a year ago, with profits down 11%.
The financial problems were in the company’s medical device business, where sales were down 8.2%. The consumer health and pharmaceutical divisions had sales increases of about 9%. Johnson & Johnson had $18 billion of cash and securities on its books at the end of the quarter. It generated $3 billion in free cash flow.
During the last decade, JNJ stock has been one of the laggards in the medical investment field. The stock’s 10-year gain of 125% was just half the sector’s average. Its dividend did not quite double in that time.
The company has tried to improve results by tilting toward drugs, buying Actelion for almost $30 billion in 2016. Even that deal was done with an eye to safety. Actelion’s research arm was spun off. JNJ’s vaccines effort is just 10 years old, dating from its 2010 acquisition of Crucell. Still, during the first quarter pharmaceuticals represented 53% of revenue.
A Trusted Name?
Johnson & Johnson is much better known for its consumer health products, which were just 17.5% of revenue during the quarter. The company was founded in the late 19th century to make surgical dressings. It’s known for Band-Aids and the pain drug Tylenol.
The latter became a case study in corporate crisis management in 1982. That year seven people died in the “Chicago Tylenol murders” case, which remains unsolved. JNJ recalled all Tylenol products, then introduced tamper-proof packaging. In 2010, another recall was issued after wooden pallets caused unwanted odors. The company has also had problems with its DePuy artificial hip, resulting in recalls and lawsuits.
Then there is baby powder. There have been 13,000 lawsuits filed against Johnson & Johnson over the last two years, charging cancer-causing asbestos has been in the product for decades. CEO Alex Gorsky was forced to testify in one such lawsuit, which the company lost. An appeal is pending.
The Bottom Line on JNJ Stock
Overall, Johnson & Johnson’s reputation within the industry is sound. Its balance sheet is sound, its response to the pandemic is also sound. Its focus on public health is very sound.
JNJ stock won’t make you rich. It is still a slow-growing, conservative company. But in an uncertain time, with a pandemic raging, it could be your best shelter from the storm. It is unlikely to make your portfolio ill, which in the present environment makes it a buy, especially for income investors.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.