Is There Opportunity in J&J After the Stock Rallies 31% in 2025?

If you are weighing your options with Johnson & Johnson, you are not alone. Investors everywhere are re-examining their portfolios after the stock's recent climb, wondering if there is still room for growth or if the easy money has already been made. The last close for J&J stood at $188.64, which caps off an impressive run: up 5.0% in the past week and 5.7% over the last month. Year-to-date, the stock is sitting on a 31.0% gain, with a 21.5% return over the past year, and those who have held for five years are up more than 44%.

These strong returns come as the broader healthcare sector regains its footing, with strategic investments and acquisitions boosting confidence in long-term fundamentals. While not all recent news has moved the needle, shifting sentiment around innovation and healthcare policy has likely played into J&J's momentum. There is also a perception that Johnson & Johnson offers resilience in a changing market. For many investors, this translates to lower risk and more consistent gains.

But what about the valuation? How much are you really paying for those potential rewards? By most traditional valuation measures, Johnson & Johnson looks healthy, scoring a robust 5 out of 6 on our value checklist. In the next section, we will break down where J&J’s valuation shines and the one area where it misses the mark. Stay tuned, because we will also explore a smarter way to use these scores when weighing your next move.

Johnson & Johnson delivered 21.5% returns over the last year. See how this stacks up to the rest of the Pharmaceuticals industry.

Approach 1: Johnson & Johnson Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future free cash flows and discounting them back to today’s value. This approach is especially useful for companies with reliable cash generation, as it anchors the valuation in tangible financial performance over time.

For Johnson & Johnson, current free cash flow stands at $18.37 billion, with analysts projecting robust growth over the next five years. While analyst estimates inform the initial forecasts, future projections out to 2035 are extrapolated. This indicates Johnson & Johnson could generate over $55 billion in free cash flow by that year. This long-term growth is central to the DCF model’s calculation.

Using these projections, the DCF model estimates Johnson & Johnson’s fair value at $442.56 per share. With shares recently closing at $188.64, this suggests the stock is trading at a 57.4% discount to its assessed intrinsic value. Such a large gap suggests that Johnson & Johnson is significantly undervalued on a cash-flow basis.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Johnson & Johnson.

Our Discounted Cash Flow (DCF) analysis suggests Johnson & Johnson is undervalued by 57.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Johnson & Johnson Price vs Earnings

The price-to-earnings (PE) multiple is widely used for valuing profitable companies like Johnson & Johnson, because it relates the company’s share price directly to its per-share earnings. For stable, cash-generating businesses, the PE ratio can be a quick barometer of market expectations as well as sentiment around future growth.

Typically, higher PE ratios reflect the market’s confidence in a company’s long-term growth potential and a willingness to pay more for each dollar of profit. A lower ratio could signal risk or muted prospects. Many investors will compare a stock’s PE with the average for its industry and peers to get some context on whether it looks expensive or cheap at a glance.

As of now, Johnson & Johnson’s PE ratio sits at 20.0x, which matches the pharmaceuticals industry average of 20.0x, but is below the peer group average of 25.3x. More importantly, Simply Wall St’s Fair Ratio for Johnson & Johnson is 24.7x. This proprietary benchmark accounts for its earnings growth, industry, profit margins, market value and risk profile. This metric is more insightful than simple peer or industry comparisons, as it adjusts for what really makes Johnson & Johnson unique in the sector.

Given that the actual PE multiple (20.0x) is materially below the Fair Ratio (24.7x), shares currently look undervalued based on this approach.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Johnson & Johnson Narrative

Earlier, we mentioned an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personalized story that connects what you believe about a company, such as how it will grow, what it will earn, and how the business will evolve, with your financial forecast and fair value estimate, all in one place.

Rather than just relying on ratios or consensus numbers, Narratives allow you to express your perspective on Johnson & Johnson by setting your own assumptions for future revenues, profit margins, and price targets. This makes it easy to see how your story translates into a fair value, helping you decide whether today's price signals opportunity or caution.

Narratives are available right now within the Community page on Simply Wall St, used by millions of investors. As new information such as news, earnings, or regulatory updates emerges, Narratives update in real time, keeping your outlook fresh and actionable no matter what the market does.

For example, one investor might base their Narrative on Johnson & Johnson's robust drug pipeline and strong margin growth, forecasting a fair value as high as $230 per share. Another, more cautious investor might focus on competition from biosimilars and potential litigation risks, arriving at a Narrative fair value closer to $155. By choosing or creating your own Narrative, you can chart a course that fits your view and see exactly when it’s time to buy or sell.

Do you think there's more to the story for Johnson & Johnson? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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