Johnson & Johnson Stock Up 4% in August – Time to Buy JNJ Stock?

The price of Johnson & Johnson stock is up 4% in August on the back of a 4-day winning streak that started on 12 August following the firm’s positive second-quarter results reported in late July.

Moreover, news about the United States possibly starting to offer vaccine boosters to Americans in the following weeks has also contributed to lifting the firm’s stock price as such a decision could lead to higher vaccine sales for the New Jersey-based conglomerate.

In late July, the company beat analysts’ estimates for the second quarter of 2021 for both revenues and earnings, with sales landing at $23.31 billion or 3.4% higher than the Street’s estimates while earnings per share landed at $2.48 per share or 19 cents above the consensus.

Moreover, the company raised its guidance for 2021, lifting its adjusted EPS estimate to $9.7, up from a previous forecast of $9.57 per share, while sales are now expected to land at around $94.6 billion – $3 billion higher than the previous forecast shared by the management team.

Is this latest uptrend poised to continue? The following article takes a closer look at the price action while also analyzing the firm’s fundamentals to possibly answer that question.

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Johnson & Johnson Stock – Technical Analysis

The chart above shows how JNJ stock started its lift-off after days of consolidating around the $172 and $174 area, with the stock now trading at all-time highs and possibly aiming to reach the $188 per share target derived from the Fibonacci extension shown in the chart in the following weeks.

Momentum readings for the stock are favoring this bullish outlook as the Relative Strength Index (RSI) has climbed to overbought levels for the first time since early 2021 – a situation that would usually indicate an acceleration in the stock’s positive momentum.

Moreover, the MACD remains on an uptrend and the distance between the oscillator and the signal line has widened, which points to an acceleration in the short-term positive momentum as well.

Even though the stock might experience a pullback to shake off the latest excessive buying, Johnson & Johnson stock seems poised to continue its latest uptrend in the following weeks or months on the back of improving fundamentals.

Higher trading volumes have accompanied this 4-day winning streak for JNJ stock and they further reinforce a bullish outlook as investor’s appetite for the stock seems to be increasing.

Johnson & Johnson Stock – Fundamental Analysis

Johnson & Johnson sales had been growing at a slower pace in the past two years but that trend appears to have been reversed as indicated by the conglomerate’s latest quarterly results. During the fourth quarter of 2020 and the first quarter of 2021, sales jumped around 8% on a year-on-year basis while sales during the second quarter of this year jumped 27% compared to a year ago on the back of a lower comparative baseline.

That said, last quarter’s top-line results have exceeded pre-pandemic levels and the company’s upward guidance revision is pointing to what could be a sustained acceleration in business volumes for Johnson & Johnson.

Moving forward, analysts are expecting to see the firm’s sales growing at an average rate of 3% for 2022 and 2023 on top of the 14% jump expected by the end of 2021.

Gross margins for the firm have stood near the 67% level – in line with its historical average – while net margins have experienced an improvement as they have landed at 27% during the first two quarters of 2021. Meanwhile, JNJ’s returns on equity (ROE) are fairly attractive and they have picked up in the past twelve months to around 26%.

At $178 per share, the dividend yield for the firm stands at 2.4% while the company is being valued at 18 times its forecasted adjusted EPS for 2021. Moreover, the firm’s strong cash flow generation capacity of over $20 billion per year should support the future growth of both its dividend and share buyback program – both of which should contribute to an appreciation in the price of the stock moving forward.

Last year, the stock advanced almost 11%, effectively lagging the S&P 500 index by nearly 5.6%, while this year JNJ stock has gained 14.5% or 3.8% less than the gains delivered by the broad-market index during that same period.

Even though the outlook for JNJ is bullish, the stock has a strong track record of underperformance when compared to the more diversified S&P 500 and this makes it a less appealing pick for investors who are focused on increasing their capital gains.

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