Johnson & Johnson (JNJ 0.09%) has a diverse healthcare business, and investors often look to it as a safe dividend stock to invest in for the long term. One area where it has been lacking, however, is growth. The company's growth is often in the single digits and with top-selling drug Stelara losing patent protection and its sales already declining, investors are concerned about J&J's long-term growth prospects. As a result, the stock has been a largely underwhelming buy of late, with its shares down 5% over the past 12 months.
Recently, however, the company announced a big acquisition, which may lead to much more future growth. Could now be the time to invest in this struggling healthcare stock?
NYSE: JNJ
Key Data Points
Johnson & Johnson to acquire Intra-Cellular Therapies
On Jan. 13, Johnson & Johnson announced plans to acquire Intra-Cellular Therapies for $14.6 billion. That's a significant investment that suggests the company is getting some promising assets in this deal, which is definitely the case.
The biopharmaceutical company creates medicines aimed at treating neurological conditions. Its key product, Caplyta, is an approved treatment for schizophrenia and depression related to bipolar I or II disorder. It may also soon obtain approval for major depressive disorder. The blockbuster drug could generate over $5 billion in sales at its peak. Intra-Cellular also has other therapies in development for the treatment of Alzheimer's and Parkinson's disease. In the trailing 12 months, the company has reported nearly $613 million in revenue and it has incurred losses totaling $86 million over that time frame.
Johnson & Johnson expects the deal will close later this year. For the healthcare giant, the acquisition is a good way to bolster its pipeline and strengthen its neurological business in the long run.
Shares of Johnson & Johnson look cheap
Johnson & Johnson is normally a good buy for its dividend and the stability it offers. Over the past five years, however, the stock has risen by around just 3%. This is not the type of investment investors are generally expecting significant returns from due to its modest growth.
But it could make for an appealing value buy given that it trades at a forward price-to-earnings (P/E) multiple (based on analyst expectations) of just 14. By comparison, the Health Care Select Sector SPDR Fund averages a much higher forward P/E of 20.
Investors haven't been overly bullish on the stock because while it offers a steady dividend that yields 3.4%, its growth rate hasn't been all that strong. For 2025, Johnson & Johnson projects its operational sales growth to be around 3%. But if the Intra-Cellular deal goes through and results in more products contributing to its top line, that growth rate may end up accelerating in the future.
Should you add Johnson & Johnson stock to your portfolio?
The deal to acquire Intra-Cellular can help diversify Johnson & Johnson's business and contribute to its long-term growth, but it likely won't turn it into a high-powered growth stock anytime soon. There are far better options to consider than Johnson & Johnson today. Even with this acquisition, its growth rate is likely going to remain in the single digits for the foreseeable future.
If, however, you're looking for dividend stock to buy, then J&J can be a good option. But with its talc lawsuits still unresolved, that's something investors should remain cognizant of as there's going to be some risk and uncertainty surrounding the business until that is over. And it's not until those legal issues come to a conclusion that I'd consider buying the stock, regardless of how cheap it may look.
