In this article I will analyze Johnson and Johnson known as (JNJ) based in its earning per Share (EPS) and its Price/Earning (P/E) ratio.
First, we need to see how was JNJ’s EPS doing in the last six years. By browsing JNJ EPS for the last years, I found that its EPS rise from 5.67$ in 2017 until it reached 7.18$ in 2022 with drop to 0.58 $ in 2018 which as shown below:
When investigating the drop in its EPS in 2018, I found that the reason behind this huge drop due to charged for $13.6 billion for a tax payment on years of accumulated foreign earnings, but since the company get back to its high earning immediately the year after it and keep this track for four consecutive years I am going to consider year 2018 earning as an anomaly and discard it.
The growth rate for JNJ EPS is 4.84% which is an average for a company that big.
Now that we have the growth rate of the JNJ’s EPS in the last five years, we are going to use this growth rate to estimated what will JNJ’s EPS be in 2027 ,which is five years from now by applying the following formula:
- Where PV = JNJ EPS in year 2022 = 7.18 $
- i = growth rate of JNJ EPS estimated above = 4.84%
- n = years of investment = 5 years in 2027
By plugging the numbers in the above formula we estimated JNJ’s EPS in year 2027 will be 9.1$.
Now we will go back to see the lowest (P/E) for JNJ in same years period which 18.44 in year 2018.
Now that we have (P/E) ratio and the prospected EPS in 2027, all what we have to do is to multiply these two numbers and see what JNJ’s stock price will be in year 2027, which is as following:
JNJ’s Stock price in 2027 = (9.1)*(18.44)= 167.8$
By applying this method we can see that JNJ’s Stock price will drop from 175.8 $ which is the price in the market as Dec 2022, to 167.8$ in year 2027, which means that if you invest 10,000$ now,it will be 9544.9$ in 2027 and you lost 455.1$ from your capital.