In this updated coverage research report, we reexamine the healthcare sector company Johnson & Johnson JNJ 0.00%↑to determine if it still meets Quality Value Investing’s (QVI) Real-Time Stock Picks criteria based on our checklist analysis of the company’s current wealth and the share price’s present value.
Johnson & Johnson | Company Current Wealth
Value Proposition
Johnson & Johnson (NYSE: JNJ) is a large-cap, dividend-paying stock in the pharmaceuticals industry of the healthcare sector. It was added to the QVI Real-Time Stock Picks on May 8, 2017, at a cost basis of $98.88 per share, adjusted for cash dividends paid.
Johnson & Johnson, along with its subsidiaries, researches, develops, manufactures, and sells a range of healthcare products worldwide. The company’s segments include Innovative Medicine and MedTech, which distribute their products to wholesalers, hospitals, retailers, and healthcare professionals such as physicians, nurses, eye care specialists, and clinics. Johnson & Johnson was founded in 1886 and is headquartered in New Brunswick, New Jersey, USA.
Economic Moat
Morningstar assigns Johnson & Johnson a wide moat rating, based on its view that J&J possesses one of the broadest economic moats in the healthcare sector. This rating is supported by intellectual property in both the drug group and the device segment, as well as switching costs in the device segment. Morningstar also recognizes the company’s extensive sales force as a valuable asset, especially for a smaller biotechnology firm looking to partner on a new drug, which enhances J&J’s ability to introduce new products to the market.
QVI’s Value Proposition Elevator Pitch for J&J
Johnson & Johnson is like owning a mutual fund of high-quality healthcare products, but with blue-chip, low-risk investments and no advisory fees.
QVI’s value proposition rating for Johnson & Johnson: Bullish.
Returns on Management
Revenue Growth and Profit Margins
According to the checklist table below, Johnson & Johnson’s trailing five-year annualized revenue growth was in the low single digits, positive, but underperformed the S&P 500's topline growth of 16.1%. Moreover, the company’s positive revenue growth of 5.1% lagged behind the broader market’s 19.2% growth for the most recently reported twelve months.
Further down the income statement, J&J reported a positive high double-digit net profit margin, achieved through a high gross margin that outperformed the S&P 500’s net profit margin of 23.0% and gross margin of 54.5%.
Returns on Equity and Invested Capital
Johnson & Johnson’s senior management achieved a return on equity (ROE) double QVI’s targeted threshold but fell short of the S&P 500’s soaring ROE of 51.0%.
Stock buyback programs often elevate ROE. For example, in the quarter ending March 31, 2025, the company spent over $2 billion on buybacks, a substantial increase from previous quarters.
J&J’s return on invested capital (ROIC) outperformed QVI’s threshold while lagging behind the broader market’s 28.0% return. In addition, the company’s ROIC exceeded its weighted average cost of capital, or WACC, demonstrating that its senior executives are outstanding capital allocators.
Owners’ Earnings
In a further test of shareholder value, the five-year trailing current wealth of owners’ earnings for Johnson & Johnson, or EPS growth plus dividend rate growth annualized, was mid single digits, an unacceptable rate of return for shareholders from a defensive healthcare staple.
Although JNJ’s most recent one-year EPS growth was encouraging at 70.3%, and free cash flow remains strong, its EPS and free cash flow don’t indicate the multi-year growth metrics that would sustain owners’ earnings in the preferred double-digit range when combined with consistent dividend growth.
QVI’s business fundamentals rating for Johnson & Johnson: Neutral.
Next, we’ll examine the company’s enterprise downsize risks, the present value of the stock price, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.
Discounts of up to 26% are now available on print editions of my fourth book, Build Wealth with Common Stocks, directly through our global distributor Ingram/Lightning Source, the world’s largest book manufacturer.
“Investing advice is fairly commonplace, but here the author shares his own unique investment wisdom that readers will not find elsewhere.” —Critic’s Report, The BookLife Prize (Publishers Weekly)