Johnson & Johnson: A Trillion–Dollar Stock by 2038?

Johnson & Johnson is well on its way to hitting the trillion-dollar market cap milestone. As the 15th largest publicly traded company worldwide and a market capitalisation of $427 billion, the global healthcare leader is already halfway there. However, the big question in the near future is whether the world’s healthcare giant will reach the trillion-dollar market cap by 2038.

Let’s examine the pharmaceutical industry in more detail.

About Johnson & Johnson

Johnson & Johnson focuses on researching, developing, manufacturing and selling healthcare products. The company is divided into three main segments: Consumer Health, Pharmaceutical, and MedTech. Within the Consumer Health segment, J&J offers a wide range of products that cater to personal healthcare needs. These products target various markets, including Skin Health/Beauty, Over-the-Counter medicines, Baby Care, Oral Care, Women’s Health and Wound Care markets.

Positive industry growth for Johnson & Johnson

Johnson & Johnson’s position within the pharmaceutical industry is a key factor to consider. While the quality of a company is significant, it becomes challenging for a business to expand if it is operating within a declining industry. Fortunately the pharmaceutical industry itself is positioned for significant expansion, driven by factors including population growth, rising healthcare expenditure, and advancements in medical technology.

The population globally is expected to reach 8.3 billion in 2027. With product prices continuing to rise, pharmaceutical spending is anticipated to increase to $1.9 trillion by 2027. To capitalise on this trend, JNJ’s strong presence on innovation and strategic acquisitions in critical therapeutic areas enhances its strong presence within the industry.

Earnings estimates

Expected to report earnings of $2.62 per share for the quarter, which marks a year-over-year change of +1.2%.

For 2023, earnings are estimated to be at $10.66, which is a year-over-year change of +5%.

For the next fiscal year, the consensus earnings estimate of $11.01 indicates a change of +3.3% compared to Johnson & Johnson’s reported earnings a year ago.

Projected revenue growth

While earnings growth demonstrates financial health, revenue growth is also key. A company cannot make significant progress without revenue growth, therefore understanding potential revenue growth is crucial.

Johnson & Johnson’s consensus sales estimate for the current quarter is projected to be $24.66 billion, reflecting a year-over-year change of +2.7%. For the current and the next fiscal year, sales estimates are projected at $98.86 billion and $101.11 billion, respectively, indicating changes of +4.1% and +2.3%, respectively.

Johnson & Johnson path to a trillion-dollar market cap

The journey towards a trillion-dollar market cap is supported by a strong lineup of existing product portfolio. Based on sales trends and first-quarter results, the company has 13 medicines and a COVID-19 vaccine that are on track to become blockbuster products ($1 billion or more in annual sales) in 2023. These include JNJ’s top-selling immunology therapy Stelara and its top-selling cancer treatment Darzalex, both of which are expected to be mega-blockbusters (sales exceeding $5 billion) again this year.

Johnson & Johnson is forecast to generate $99 billion in revenue in 2023 due to the wide range of products. For a $1 trillion valuation, the company would need to show consistent price-to-sales (P/S) ratio of around 4.5 and generate $222 billion in revenue by 2038. To reach this target, JNJ would need to maintain an average compound annual growth rate of about 6% in its sales over the next 15 years – a realistic goal given the company’s strong and promising drug pipeline.

Johnson has several promising drugs that could make an impact on the market. One example is its blood thinner, milvexian, which is co-owned with Bristol Myers Squibb. Analysts estimate that this drug alone may bring in over $2 billion in annual revenue for each company. Tremfya, which is presently in Phase 3 clinical trials for ulcerative colitis and Crohn’s disease, also shows potential blockbuster indications.

Looking beyond the immediate future, out of the 102 indications in its drug pipeline as of April 18, 70 are in Phase 1 or Phase 2 clinical trials. This positions the company well to tackle competition from Tremfya biosimilars expected to enter the market by 2025.

Is the stock a buy?

While Johnson & Johnson works toward achieving a trillion-dollar valuation, it offers its shareholders a substantial starting income from the Dividend King. With a dividend yield of 2.9%, JNJ’s stock surpasses the S&P 500 index’s 1.6% yield. And with a projected dividend payout ratio of only 44% in 2023, there are indications that the income received by JNJ shareholders may likely increase over time.

J&J’s forward price-to-earnings (P/E) ratio is 15.4, which is slightly higher than the industry average forward P/E ratio of 13.4.

The trillion-dollar valuation is within reach

Johnson & Johnson’s trillion-dollar valuation may well be within reach. The company’s solid historical performance, diversified portfolio, robust growth prospects, and commitment to innovation lay the foundation for continued success. Of course, achieving such a milestone will not be without challenges, as J&J will need to navigate evolving market dynamics and industry disruptions.

While we cannot predict the future with certainty, solid foundation, strategic initiatives, and commitment to global health make it a strong candidate to become a trillion-dollar company. If you intend to trade CFDs, you should keep an eye on the company’s growth trajectory and market performance and make your own judgements whether this stock offers potential trading opportunities or not.

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