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In April, Johnson & Johnson announced that it was increasing its quarterly dividend 4.2% to $1.24, extending the company’s dividend growth streak to 62 consecutive years.

The company announced first-quarter results. Revenue for the quarter grew 2.3% to $21.4 billion while adjusted earnings-per-share of $2.71 compared to $2.68 in the prior year. Excluding COVID-19 related sales, revenue increased 7.7% for the quarter.

Johnson & Johnson provided revised guidance for 2024 as well. The company now expects revenue in a range of $88.7 billion to $89.1 billion and adjusted earnings-per-share in a range of $10.60 to $10.75. Both totals are up from prior guidance.

Oncology, led by Darzalex, continues to perform well. Johnson & Johnson announced that it proposed to settle virtually all of its ovarian cancer claims related to its talc products for $6.5 billion.

Competitive Advantages & Recession Performance

One of Johnson & Johnson’s primary competitive advantages is the size and scale of its business. Few competitors can match the company’s reach. While the spinoff of the consumer business removes some diversification from the business model, Johnson & Johnson remains a leader in pharmaceutical and medical devices. This should unlock some value and possibly result in a higher valuation for the stock.

Johnson & Johnson has navigated multiple recessionary periods and typically performed very well. The company’s earnings per share grew almost 12% from 2007 to 2009. Earnings did decline 7.5% in 2020 during the worst of the pandemic, but the company established a new high the very next year. The dividend continued to be raised through both periods.

Growth Prospects, Valuation & Catalyst

Johnson & Johnson grew earnings per share at a rate of 6.3% annually over the last decade. We forecast earnings growth of 6% per year through 2029.

Shares trade at 14.1 times earnings estimates for the year, which is below our target P/E of 17. Reaching our target valuation by 2029 would add 3.8% to annual returns for the period.

Therefore, we project that Johnson & Johnson will return 12.5% annually over the next five years due to earnings growth of 6%, a starting yield of 3.3%, and a tailwind from multiple expansion.

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