Johnson & Johnson Stock Up 3% in July – Time to Buy JNJ Stock?

Johnson & Johnson stock is up 3% so far this month while the stock bounced from an intraday loss yesterday to close the day with a 0.6% advance following the release of the firm’s Q2 2021 earnings.

Even though vaccine sales are not expected to move the needle that much for JNJ, they might be providing the kind of positive momentum for the stock that could continue to lift the price in subsequent weeks.

Meanwhile, the company raised its full-year guidance for 2021 for both revenues and earnings, now expecting to see total sales landing at around $94.6 billion, up $3 billion from its previous forecast, while adjusted earnings per share are now expected to land at $9.7 share.

Analysts had estimated sales of $92.5 billion for the conglomerate for 2021 along with non-GAAP earnings per share of $9.55. Could this improved guidance help the stock move higher in the following weeks? The following article takes a look at the latest price action to determine if the odds currently favor the continuation of this recent uptrend.

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Johnson & Johnson Stock – Technical Analysis

JNJ shares have been rising steadily since they dropped sharply back in October 2020, posting an all-time high of $174 per share in January but retreating since then in the form of a subsequent lower high.

The trend continues to favor a move higher for J&J stock, especially after this upbeat earnings report as the share price bounced off this threshold two days before the report came out while the price action seems to be advancing towards tagging the upper trend line shown in the chart for a third time.

Meanwhile, momentum seems to be picking up its pace as indicated by multiple higher highs in the Relative Strength Index (RSI) while JNJ’s short-term moving averages have just posted a golden cross – typically a bullish signal.

In the past three occasions that JNJ’s 20-day simple moving average crossed above the 50-day moving average, the stock has delivered gains for investors in the weeks that followed.

Moreover, trading volumes for the stock have exceeded the 10-moving average in the past three days, which reinforces a bullish outlook for the stock amid increased buying interest following this positive quarterly report.

Based on these readings, everything points to the possibility of JNJ stock posting fresh all-time highs, with a plausible mid-term target of $187.5 per share for a 10% upside potential. It is important to note that JNJ stock is not considered a volatile issue. In fact, implied volatility at the moment is fairly low at 15.5% and currently stands at the 3.6 percentile. This means (1) that options are cheap and (2) that the stock is expected to move at a relatively slow pace, regardless of the direction.

Johnson & Johnson Stock – Fundamental Analysis

Johnson & Johnson’s revenue growth seems to be accelerating this year as the company’s upbeat guidance is pointing to a 14.6% jump in its top-line results – a number that far exceeds the firm’s historical performance in the past four years at least.

Meanwhile, gross margins have been improving this year, moving from 65% to 67% by the end of this second quarter. Moreover, EBITDA margins seem to be coming in better than usual while net margins have stood at around 27%.

Based on JNJ’s $9.7 per share EPS forecast, the stock is currently trading at 18 times its forward P/E ratio. This multiple seems decent based on the company’s forecasted EPS growth of 8% for the next two years according to data provided by Koyfin and points to JNJ as a fairly valued stock.

This improvement in the firm’s fundamentals and growth prospects could lead to an acceleration in the volume of stock buybacks performed by J&J’s management along with the possibility of a dividend increase on the back of higher free cash flows.

At the moment, the dividend yield stands at 2.4% and prospects of an upcoming hike in distributions could result in further upside potential for the stock. These numbers also provide further support to the technical bullish thesis outlined previously.

Finally, analysts’ estimates coincide with this bullish outlook for JNJ stock, with the current consensus price target standing at $184 per share for an 8.2% potential upside ahead. Currently, 13 out of 19 analysts covering the stock are bullish while the remaining 6 are neutral on JNJ.

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