Johnson & Johnson (NYSE: JNJ) has quietly emerged as a compelling turnaround story with its stock price rallying sharply in recent months and currently trading at a 52-week high. Compared to a frustrating last couple of years for investors, the latest results from the healthcare giant highlights rebounding growth and an improved earnings outlook.

Could the stock make a good addition to your portfolio today? Here's what you need to know.

Stronger going into 2025

There's a lot to like about Johnson & Johnson, a company recognized for its history of innovation and strong fundamentals. A major development in recent years was the 2023 spinoff of its consumer health division, which included brands like Tylenol and Band-Aid, with the creation of Kenvue as a fully independent company. Management made the restructuring decision in part to refocus the company's efforts on core strengths within pharmaceuticals and medical technologies.  It appears the strategy is now paying off.

In the second quarter (for the period ended June 30), worldwide sales climbed by 7.1% year over year on an operational basis, a metric that excludes the impact of divestitures, foreign exchange variations, and the declining COVID-19 vaccine business. More impressive was the 10.2% increase in adjusted earnings per share to $2.82.

The momentum has been driven by the innovative medicines segment, where operational revenue climbed by 8.8% from Q2 2023. That includes an 18.6% increase in sales from the oncology group, with several cancer treatments seeing market share gains globally. The performance of immunology treatments has also been solid.

The medtech segment achieved operational revenue growth of 4.4% despite ongoing weaknesses in the Chinese market. Notably, Johnson and Johnson's 2022 acquisition of Abiomed and the deal for Shockwave Medical earlier this year are driving strong gains for the cardiovascular division.

Overall, the better-than-expected start of the year has allowed management to hike its full-year revenue guidance. Johnson & Johnson now expects 2024 operational growth of 6.4% as a midpoint target compared to the prior 5.8% estimate. Maybe even more importantly, the trends are expected to continue into 2025 with even stronger profitability.

The next steps for Johnson & Johnson

Part of the attraction of Johnson & Johnson as an investment opportunity goes back to its diversified profile, even as it moved to streamline the business away from consumer products.

The company notes that it maintains 25 product platforms that contribute more than $1 billion in sales. Over 65% of its revenue come from products that are either No. 1 or No. 2 in their respective market categories. This global business breadth and consistent cash flow generation works to reaffirm the company's leadership position.

Within the medicines portfolio, several high-profile upcoming milestones, including clinical data readouts and potential regulatory approvals, offer catalysts that can further increase the long-term growth runway. Notably, Johnson & Johnson's blockbuster psoriasis and ulcerative colitis drug Tremfya recently received a label expansion approval by the Food and Drug Administration (FDA) to treat adults with moderate to severe ulcerative colitis. The company is seeking a separate indication for Crohn's disease.

Ultimately, there are many moving parts in the company pipeline, including innovations on the medtech side of the business, to support a positive outlook.

In terms of valuation, Johnson & Johnson stock is trading at approximately 17 times management's 2024 earnings-per-share guidance as a forward price-to-earnings (P/E) ratio. This level is well below the decade average for the P/E multiple, which is about 23. There's a case to be made that shares are undervalued because the market does not yet fully appreciate the company's improved profile.

The big picture for investors

I believe Johnson & Johnson stock deserves a buy rating. This is a great company that appears to have regained its footing following some early post-pandemic challenges.

The ability to keep driving earnings higher should continue to reward shareholders. Keep in mind that Johnson & Johnson is among the exclusive stock market group of Dividend Kings with its 62-year record of annual dividend increases. The current quarterly rate of $1.24 per share yields 3%, and the streak of rate hikes is likely to continue, another good reason to own the stock.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Is Johnson & Johnson Stock a Buy? was originally published by The Motley Fool