Dow Jones component Johnson & Johnson (JNJ) is among the pharmaceutical companies leading the charge toward a coronavirus vaccine. Now, JNJ stock is edging closer to a buy point out of a flat base.
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JNJ stock hit a four-year low in the March downturn, but quickly reaccelerated to a record high of 157 on April 23, on bullish expectations for its coronavirus vaccine. Chief Executive Alex Gorsky has said he sees a “high degree of probability of being successful.”
Shares broke out of a cup-with-handle base in August and spent 10 days in a buy zone before creeping up toward that record high again. JNJ stock has risen a single-digit percentage in 2020 as of the close on Dec. 23.
In addition to the coronavirus pandemic, legal issues are weighing on shares. A number of consumers say the company’s talcum-based baby powder caused them to develop cancer. Further, the company faces claims it played a part in the national opioid crisis.
So, should investors consider taking on JNJ stock now?
JNJ Stock Fundamental Analysis: Declining Measures
Johnson & Johnson is the No. 1 diversified medical stock by market cap.
Among its wares are immunology, oncology and neuroscience drugs. In the third quarter, those three segments generated nearly three-quarters of J&J’s total drug sales. Operationally and on a strict as-reported basis, all three units grew.
All told, Johnson & Johnson’s drug sales increased 5% on an as-reported basis to $11.42 billion. Operationally, pharmaceutical sales rose 4.6%.
Amid the coronavirus pandemic, medical device sales have suffered for many companies. J&J wasn’t immune in the third quarter as devices revenue slipped 3.6% on an as-reported basis to $6.15 billion.
Total revenue inched 1.7% higher to $21.08 billion. Adjusted earnings jumped 3.8% to $2.20 a share.
Neither metric is in line with CAN SLIM rules of investing. Savvy investors look for companies with recent earnings and sales growth of at least 25%. JNJ stock simply isn’t there.
And J&J isn’t expected to get there in the fourth quarter. Analysts polled by FactSet call for adjusted profit of $1.83 a share on $21.7 billion in sales. Earnings would fall 3%, but sales would grow 5%.
What Does 2019 Say About JNJ Stock?
Last year, the pharmaceutical company reported 1% sales growth across all products, decelerating from a 7% increase in 2018. That trails fellow large medical player Abbott Laboratories (ABT), which reported 4% growth in 2019, also a deceleration.
In 2020, analysts expect Johnson & Johnson to earn $8 a share, minus some items, on $81.8 billion in sales. Earnings would slip 8% and sales be flat.
Johnson & Johnson Technical Analysis
JNJ shares are forming a flat base with an entry at 155.57, according to MarketSmith.com.
Shares of J&J have a mediocre Investor’s Business Daily Composite Rating of 47 out of a best-possible 99. The CR scores a stock’s key growth metrics against all other stocks regardless of industry group. So in terms of key growth measures, JNJ stock ranks in the bottom half of all stocks.
(Related: Does your favorite stock get a pass or fail rating from IBD Digital?)
J&J stock also has an IBD Relative Strength Rating of 30. The RS Rating measures a stock’s 12-month performance on a 1-99 scale against all other stocks. Most big winners have an RS Rating of 80 or higher before they break out on major price runs. This puts J&J shares behind leading stocks.
Johnson & Johnson Stock And The Opioid Crisis
There have been a number of settlements in the opioid crisis.
Last year, attorneys in four states announced that J&J, Teva Pharmaceutical (TEVA), AmerisourceBergen (ABC), Cardinal Health (CAH) and McKesson (MCK) agreed to a broad $48 billion settlement.
J&J also settled with two Ohio counties for $10 million. In addition, Johnson & Johnson will pay $5 million in legal fees and make $5.4 million in charitable giving, for a total payout of $20.4 million.
Also last year, a judge said Johnson & Johnson must pay $572 million to help abate Oklahoma’s opioid epidemic. Afterward, a judge lowered that payment to $465 million. Still, the pharmaceutical company argues the payment should be $355 million to account for out-of-court settlements.
More recently, in mid-September, New York state filed civil charges Thursday accusing the company of insurance fraud for downplaying the risks of opioid painkillers. The company denied the charges.
Litigation Weighs On The Pharma Company
In May, Johnson & Johnson said it would pull its baby powder brand from shelves in the U.S. and Canada amid “changes in consumer habits” and “misinformation around the safety of the product.” This will also help the company shift more resources to its coronavirus vaccine.
The safety of Johnson & Johnson’s baby powder has been called into question over recent years. A ruling by New Jersey’s appellate court revived at least two talcum power lawsuits in that state and could lead to other suits being reinstated.
JNJ stock fell more than 6% on a single day in October 2019 after a Food and Drug Administration test found trace amounts of asbestos in a single bottle of baby powder purchased online. J&J later said an investigation showed no asbestos in additional samples from that bottle and lot.
In December 2019, JNJ stock broke out following news of additional testing that found no asbestos.
JNJ Stock News: Coronavirus Vaccine Efforts
Johnson & Johnson is among the bevy of companies developing treatments and vaccines to tackle Covid-19.
On Sept. 23, the company said it’s started Phase 3 testing of its vaccine candidate. It aims to enroll as many as 60,000 participants in clinical trials to determine the safety and effectiveness of its vaccine. It said it expects to seek emergency use authorization for its vaccine in the first quarter of 2021.
In addition, the company said it expects positive results of its Phase 1 and Phase 2 tests will soon be published.
In June, the New York Times reported that the Trump Administration’s Operation Warp Speed had selected Johnson & Johnson’s experimental coronavirus vaccine as one of five efforts most likely to succeed. Operation Warp Speed is a government push to develop a coronavirus vaccine by January.
In mid-February, J&J announced it would expand its partnership with the Biomedical Advanced Research and Development Authority to develop Covid-19 drugs.
On March 30, JNJ stock jumped 8% after CEO Gorsky said the pharmaceutical company could have a coronavirus vaccine available in the first or second quarter of 2021. Johnson & Johnson is aiming to have 1 billion doses available by the end of 2021.
Is JNJ Stock A Buy?
No, JNJ stock is not a buy right now.
JNJ stock was above its 50-day moving average and 200-day line as of midday trading on Dec. 24. But shares have yet to top a buy point out of a new flat base.
The company’s fundamentals are not strong, as litigation risk continues to complicate J&J’s future. Earnings for 2020 are expected to fall from the previous year for the first time since 2015.
And for the current period, analysts expect earnings to decline and for sales to rise by just a single-digit percentage. That is not in line with CAN SLIM rules of investing. Investors should look for stocks with consistently growing quarterly sales and earnings.
The fundamental and technical ratings for Johnson & Johnson stock lag better-rated diversified medical stocks, like Danaher (DHR).
Keep an eye on news from Johnson & Johnson regarding its coronavirus vaccine, which could help shares of JNJ stock rise.
To find the best stocks to buy and watch, keep tabs on IBD Stock Lists. Also, make sure to check out the broad list of stocks to buy or sell.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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