The Bullish and Bearish Case for Johnson & Johnson in 2015

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The bull market is almost six years old now, and the Dow Jones Industrial Average rose by 7.5% and the S&P 500 Index rose 11.4% in 2014. While those index performances do not account for individual stock dividends, Johnson & Johnson (NYSE: JNJ) closed out 2014 at $104.57, for a gain of 17.3%, including its dividend adjustments.

24/7 Wall St. has undertaken a bullish and bearish review to evaluate both sides of the coin to see what lies ahead for Johnson & Johnson and other Dow stocks in 2015 and beyond. One key consideration for the year ahead is that Johnson & Johnson keeps managing to perform well. The company raised its dividend again and managed to have upside performance above what was expected.

The stock had a 2014 trading range of $86.09 to $109.49, and the consensus analyst price target of $108.85 would imply upside of 4.1% this year. Then there is the dividend yield of 2.6% to consider. The company had a market cap of $293 billion at the end of 2014. While companies like Pfizer Inc. (NYSE: PFE) and Merck & Co. (NYSE: MRK) have restructured and narrowed their focus, Johnson & Johnson is nearing a conglomerate status full of consumer products, drugs and medical devices and products.

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While Johnson & Johnson once was plagued by product recalls, which may not have ended entirely, it is safe to say that most stocks do not rise over 17% if the investing community questions the safety or validity of their products. This company is also one of the top spenders on research and development, a trait that is supposed to drive solid long-term returns for investors. Johnson & Johnson was one of the most respected brands in 2014, and it has one of the oldest brand logos around as well.

With a dividend-adjusted performance of 17.3% in 2014, J&J’s total upside this year, with the dividend included, is expected to be 6.7%. The reality is that this does not seem like excessive upside. What is amazing here is that Johnson & Johnson beat earnings in at least the past four quarters, which may account for its upside performance.

The stock is valued at 17 times expected 2015 earnings, more or less within the average for Dow and non-tech S&P 500 stocks. The company still manages to keep growing earnings, but the sales growth of almost 5% in 2014 is expected to slow down to just over 1% sales growth in 2015. Johnson & Johnson also has currency risk at a time when the strong dollar could be weighing on sales in Europe, Asia and key emerging markets.

The highest analyst price target is $123, and with the dividend included would imply upside of nearly 20% if the most optimistic scenario comes about. The other side of the coin is that the least optimistic price target on the shares is $96, implying a loss for investors in 2015, if the pessimists are correct.

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