Johnson & Johnson (JNJ 0.12%) is one of the world's largest and most prominent healthcare leaders. And if investing in a company came down to size, the stock would be a no-brainer. However, Johnson & Johnson has encountered legal and regulatory headwinds in the past few years. Further, revenue growth generally hasn’t been impressive, nor has Johnson & Johnson’s stock market performance. Is the pharmaceutical giant still worth investing in?
The case for Johnson & Johnson
Some might describe Johnson & Johnson’s business as boring, but sometimes, that’s not such a bad thing. Selling pharmaceutical products might not be as exciting as leading the artificial intelligence revolution, but it is a steady and reliable business even when the economy is down since patients never stop needing potentially lifesaving medicines. Johnson & Johnson’s portfolio features more than 10 blockbuster drugs and spans several therapeutic areas, from infectious diseases to oncology.
The healthcare giant is also a leading medical device maker, which adds diversification to its operations. Johnson & Johnson’s financial results are generally steady and consistent.
JNJ Revenue (Annual) data by YCharts
The company’s balance sheet is rock solid and has earned it an AAA rating, the highest available, from S&P. And despite its not-so-impressive top-line growth in recent years, that could change in the long run, for at least two reasons. First, Johnson & Johnson split from its consumer health business in 2023. This unit had become a drag on its revenue growth. The company will also be able to invest more in its core pharmaceutical and medical device business, which should lead to stronger sales growth down the line.
This split is still relatively recent. Its impact on Johnson & Johnson's business will become clearer as time goes by. Second, Johnson & Johnson has several growth opportunities. One of them is within the robotic-assisted surgery (RAS) industry. Johnson & Johnson is developing the Ottava system to compete in this underpenetrated market dominated by Intuitive Surgical. Though Ottava isn’t yet approved in the U.S., it likely will eventually and provide a key source of revenue to the company for years.
So, Johnson & Johnson’s financial results should remain solid. Lastly, the healthcare leader is an excellent income stock. Johnson & Johnson has increased its payouts for 62 consecutive years, making it a Dividend King. Between Johnson & Johnson’s strong underlying business and excellent dividend program, the stock may be a solid pick for long-term, income-seeking investors.
Can the company overcome its obstacles?
Johnson & Johnson’s headwinds include its thousands of talc-related lawsuits and a new law in the U.S. that gives Medicare the power to negotiate drug prices. The first round of negotiations will target three of the company’s medicines. Regarding the first issue, Johnson & Johnson is, through a subsidiary, proposing an $8 billion settlement that currently has the support of about 83% of eligible claimants and would resolve 99.75% of talc-related lawsuits against the company.
While it’s not a done deal, things might be moving in that direction. Of course, that $8 billion will come out of Johnson & Johnson’s pockets -- but for a company that generates more than $80 billion in revenue every year, it’s not the end of the world. Concerning the second problem, Johnson & Johnson has survived countless regulatory changes in the past several decades. The company has the flexibility to navigate this one, too. Johnson & Johnson’s pipeline features almost 100 ongoing programs.
And with more investments in this area following the separation of its consumer health segment, Johnson & Johnson’s innovative capabilities will be enhanced.
Here’s the verdict
Johnson & Johnson’s headwinds are unquestionably worth monitoring. But even with these obstacles, the company’s stock is an excellent choice for some investors. Certainly not for those looking for high-growth companies -- that’s not what the drugmaker can offer. Instead, Johnson & Johnson is a reliable, blue-chip stock dividend investors or, perhaps, retirees, will love.
