Johnson & Johnson Stock Can Keep Rising as Strategy Pays Off

Key Points

• Johnson & Johnson had a solid quarter, signaling that its strategy is working. 
• Margin improvement bolsters the outlook for dividends and share buybacks.
• Analysts and institutional trends provide support for this market. 

Johnson & Johnson’s NYSE: JNJ stock price can continue to advance because its strategy to reinvigorate growth and widen margins is working. The plan centers on divesting underperforming healthcare businesses to focus on higher-margin, more potent growth markets.

Among the details emerging from the Q3 release is the intention to spin off the orthopedics unit as a stand-alone business, a move that should enable further improvement in organic growth and earnings quality. 

The takeaway for investors is that the spin-off will take up to two years to complete. In that time, JNJ’s stock price will be supported by business growth, cash flow, and significant capital returns. Johnson & Johnson isn’t a high-yielding stock. Still, as of mid-October, its 2.75% yield is double the broad market average, its distribution is increased annually, and the payout is reliable.

The $1.30 quarterly payment is less than 50% of the earnings outlook, backed up by a healthy balance sheet, leaving sufficient free cash flow for reinvestment and share buybacks. The buybacks aren’t robust but reduce the count incrementally each year, providing some leverage to investors. 

Johnson & Johnson Steady After Beat-and-Raise Quarter

Johnson & Johnson had a good Q3, growing its business by 6.8% compared to the prior year, outpacing MarketBeat’s consensus figure by 100 basis points. The gains were driven by growth in both operating segments and reporting regions, with Innovative Medicine and Med Tech each up by approximately 6.8%.

Growth was strongest abroad, with International sales growing by 7.6%. However, domestic sales were also solid, at just over 6.0%, and are expected to remain so over the coming quarters. 

The margin news is also good. The company widened its margins to drive leveraged growth in net income and earnings, which rose nearly 16% year over year.

Among the critical details is the free cash flow, which was flat at roughly $14.2 billion, sufficient to sustain the capital return outlook and balance sheet health. 

Guidance is another area of strength, but the news is mixed, as reflected in the tepid stock price action following the release. The company raised its revenue targets, expecting growth of nearly 5.7%, but left its earnings targets unchanged due to higher taxes.

Even so, earnings are expected to grow at an accelerated pace, leaving the cash flow and capital return outlook unchanged. 

Analysts and Institutions See Value in JNJ at $200

Analysts and institutional trends suggest value for JNJ investors. Trading at 18x its earnings in 2025, near the low-end of its historical range, and only 12 times its 2034 forecasts, suggesting a minimum of 50% upside is possible.

As it stands, the analysts' consensus views JNJ stock as fairly valued as of mid-October. Still, coverage is increasing, sentiment is firming, and the upward trend in price target revisions is providing lift to the market. The high-end range puts JNJ above $200, which is likely to head higher over the upcoming quarters, and institutions are also buying.

They strengthen the support base by owning 70% of the shares and have been buying on balance all year. 

The stock price action was tepid following the release, suggesting resistance near $200. It may result in a consolidation or pullback; however, the JNJ market remains above a critical pivot point that will likely provide solid support.

That point coincides with prior highs and a long-term uptrend line in place since 2012. The likely outcome is that JNJ consolidates at current levels before continuing its advance in line with its trend.