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Johnson & Johnson Stock Price is Undervalued; Dividends are Safe

Johnson & Johnson (NYSE: JNJ) stock price has been under pressure since the start of this year. The stock price currently trades around $130 – well below from the 52-weeks high of $145 a share. Traders concerns over slower revenue growth are impacting its share price performance.

JNJ Johnson & Johnson daily Stock Chart

JNJ’s revenue declined 1% in the second quarter compared to last year period. The revenue drop is driven by lower revenue from its medical devices segment – which plunged 6% from the year-ago period.

On the other hand, its consumer and pharmaceutical business segment generated positive revenue growth in Q2. The company says they are working on new products to enhance their revenue base.

Alex Gorsky, Chairman, and Chief Executive Officer, “our pipelines continue to progress with the launch of new products and several regulatory submissions and approvals, which positions us well to deliver the next wave of transformational products and solutions.

Despite slower revenue growth, the company has generated robust growth in earnings and cash flows. Its second-quarter adjusted earnings per share rose 22% from the previous year period. The earnings growth is driven by cost savings, investments in high margin products and the focus on share buybacks.

Johnson & Johnson Stock...

The company generated $5.9 billion in operating cash flows while its capital investments stood around $2.7 billion. JNJ was left with $3.2 billion in free cash flows – which is more than enough to cover dividend payments of $2.5 billion. It has used the rest of the cash flows for share buybacks. It currently offers a quarterly dividend of $0.95 per share, yielding around 3%. JNJ has increased its quarterly dividend in the past 57 consecutive years.

Johnson & Johnson stock price looks undervalued based on strong cash flows and solid earnings growth. Its stock is currently trading around only 15 times to earnings when the industry average is hovering around 20 times.

Buying Johnson & Johnson stock following the recent selloff appears like a good strategy for dividend investors. The company is well set to offer sustainable growth in dividend along with steady share price appreciation.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.