Portfolio Assessment
Explain how current investments have made Johnson and Johnson successful.
The current investment has made Johnson and Johnson successful by creating programs that meet the different needs and interests of the employees. The focus of each investment has been towards making the programs convenient as a way of driving an engagement with the stakeholders. The actions taken in the investment being made in Johnson and Johnson have resulted in the creation of more financial incentives contributing to their success. More so, the current investment of the organization has been centered on technological innovation. The inclusion of current trends in investment makes the company more competitive in the global market. The research and development department has played a considerable role in ensuring that the investment is made following the products and services offered (Johnson and Johnson, n.p). Johnson and Johnson have been better positioned to carry out a risk assessment of their several investments. They are risk is taken, such as in the development of the COVID-19 vaccine but have carried out forecasting of their operation. The approach in investment has contributed to their success since they are in a much better position to create a contingency plan. The focus has been on ensuring that the investment is secure in situations where an anticipated risk is encountered.
Analyze Johnson & Johnson’s portfolio as a whole to include price-to-earnings ratio, dividend yield, and earnings per share compared against a major stock market index.
Price-to-Earnings Ratio
The PE ratio is used in valuing a company by comparing the current share price and the earnings per share. Whether the price to earnings ratio is reasonable will depend on the industry in which the company is operating. As of the 2021 financial year, the PE ratio of Johnson and Johnson was 17.38 (Nasdaq, n.p). The stock market index PE ratio for biotechnology and pharmaceutical industries is set at approximately 85.47. A comparison between the two PE ratios shows that Johnson and Johnson are operating effectively in the industry. Investors will prefer the company because of the low per earnings ratio compared to that of the whole pharmaceutical sector.
Dividend Yield
A dividend yield compares the annual dividend payout to the current share price of a company. The dividend yield of Johnson and Johnson is set at 2.54% in the 2021 financial year (Ycharts, 2021). In general, the dividend yield for the biotechnology industry stands at 3.5%. There is a considerable distinction between the two values. A good dividend yield for a company needs to be between 4 to 6%. However, the value might vary based on several factors, such as interest rate and the general conditions that have been presented in the market. Since the dividend yield of Johnson and Johnson is much lower than that of the industry, there is no justification for investors to buy stocks for dividend income.
Earnings per Share
Earnings per share are obtained as the profits in an organization divided by the outstanding shares in the common stock. Higher earnings per share indicate more excellent value since the investors will be willing to pay more for the shares. The primary assumption among the investors is that the company will have higher profits relative to the share price that they are willing to invest in. The earnings per share for Johnson and Johnson stand at 162.89 (Macrotrends, 2021). Good earnings per share in the pharmaceutical industry should be above 100, but other factors attribute to the fluctuation. A comparison between the two earnings per share indicates that the organization is performing well in the industry. It is likely to attract more investors with the intention of a high payout in the end.
Critique each industry holding as a stand-alone.
Current liabilities is one of the holdings in the industry that is key for evaluation. It is a representation of the total obligations that an organization encounters in a given operation and needs to be settled in a single financial year. The current liabilities of Johnson and Johnson have been on the rise from $63, 200 million in the 2020 financial years to $81,203 in 2021 (Macrotrends, 2021). The long term obligation in the company is a representation of the amount that is obliged and needs to be paid in a years’ time. There has been a decrease in the liabilities of Johnson and Johnson Company from 2020 to 2021 but it was increasing in 2019. The shareholders equity on the other hand depicts the net assets that are under ownership by the stakeholders. In the past five years, the shareholders equity for the organization has been declining. The decrease was from $81,394 million in 2020 to $80,546 million in 2021.
Turnover ratio is a metric that is used in determining the efficiency of a company in gathering their revenue and management of the available assets. The ratio for competing company Bayer Pharmaceuticals was 14.64 in 2021. The figure was a decrease from 15.02 in 2020 (Macrotrends, 2021). The inventory turnover will show the level of effectiveness of the organization towards the management of the inventory and the main focus is on the cost of goods sold. It shows the time it has taken a company to make conversions to sales. Bayer pharmaceuticals inventory turnover stands at 65.12 which is much higher than that of Johnson and Johnson implying that are a stiff competition.
Evaluate Johnson and Johnson’s risk level from their current Beta.
The current Beta for Johnson and Johnson is 0.7 (Ycharts, 2021). A beta value that’s is higher than one indicates a good stock since it is more volatile than the entire market. If the beta value is lower than one, as is the case for Johnson and Johnson, the risk level is very high since there is less volatility in the stocks. The beta value of 0.7 for Johnson and Johnson implies that they are less volatile in the overall market. The risk level of operating in the biotechnology and pharmaceutical industries is much higher.
References
Macrotrends. (2021). Johnson and Johnson EPS – Earning per share 2006-2021. https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnson/eps-earnings-per-share-diluted.
Ycharts. (2021). Johnsons and Johnson Dividend Yield. https://ycharts.com/companies/JNJ/dividend_yield.
Nasdaq. (n.d.). JNJ Price/Earnings & PEG ratio. https://www.nasdaq.com/market-activity/stocks/jnj/price-earnings-peg-ratios.
Johnson and Johnson. (n.d.). Innovation. https://www.jnj.com/innovation.
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