Johnson & Johnson (NYSE:JNJ) has recently been court-ordered to pay out close to $111 million, a record setting amount, to a Virginia woman named Lois Slemp. The law suit claims that she developed ovarian cancer after using the company’s products for longer than forty years. This is just the latest lawsuit alleging that using Johnson & Johnson’s baby powder causes cancer. Slemp was diagnosed with ovarian cancer back in 2012 and then it spread to her liver. She blames her illness on her use of the company’s talcum based products. Johnson & Johnson disputed the scientific evidence behind the plaintiffs allegations and pointed out that some similar cases were thrown out of court in the past due a lack of reliable evidence. This ruling comes after 3 previous jury awarded a total of 197 million dollars to other plaintiffs who made related claims. Johnson & Johnson is appealing all of these cases, but it still has a long fight ahead. About 2000 law suits are in courts across the country over concerns about health problems caused by prolonged use of these products. The company agreed in 2012 to stop using 1,4-dioxane and formaldehyde, both considered probable carcinogens, from all of its products by 2015.
But despite the legal troubles, many investors continue to believe that Johnson & Johnson is still a solid long term investment. It has been growing its dividends every year for decades and strong earnings growth. Its EPS growth over the last 5 years is 11.20%, which appears to be pretty high. Currently JNJ is trading at $123 which is down from its all time high of $129 back in March of this year. Even though it has not been a good month for the company, its stock still managed to return about 7% year to date. According to Thomson Reuters there are 18 stock analysts currently covering JNJ. The lowest 12 month price target is $110, and the highest price target is $140. The average appears to be $129, which is about 5% higher than its current market value. Including some dividend income analysts are basically saying they expect JNJ to earn a total return of 8% over the next year. Forward projections appear to be positive for the company as well. For the year ending 2017 JNJ is expected to earn $7.10 per share. By 2018, the EPS grows to $7.67. And in 2019 it is expected to be $8.14.
In its recent financial reporting for Q1 2017, Johnson & Johnson presented $17.8 billion in sales, a 1.6% increase. This is in line with expectations. The company is confident that it will achieve the full-year financial guidance it established at the beginning of the year, according to Chairman and Chief Executive Officer, Alex Gorsky.
Among some important developments in 1st quarter 2017 Johnson and Johnson has announced a definitive agreement to acquire Actelion Ltd., for approximately $30 billion. It also submitted a supplemental new drug application to the U.S. Food and Drug Administration (FDA.) This drug would be used for the treatment of chronic Graft-Versus-Host disease after failure of one or more lines of systemic therapy.
With a price to earnings ratio of 20 times, JNJ is not a cheap company at this moment. But if investors believe that it can reach its projected 2019 EPS of $8.14, then it may be a good stock to buy and hold. Even if the P/E multiple drops down to a more moderate 16 times in 2019, the stock should be worth $130/share by then. The question is can investors be patient enough to wait for the long term benefits this dividend growth stock should provide.
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. It operates through three segments: Consumer, Pharmaceutical and Medical Devices.
This author does not have any shares in JNJ and does not plan to own any within 72 hours of this post.