Critical Comparison: Johnson & Johnson (NYSE:JNJ) versus Merck & Co., Inc. (NYSE:MRK)

Johnson & Johnson (NYSE:JNJ) and Merck & Co., Inc. (NYSE:MRK) are both large-cap medical companies, but which is the superior business? We will contrast the two companies based on the strength of their risk, dividends, profitability, analyst recommendations, valuation, institutional ownership and earnings.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Johnson & Johnson and Merck & Co., Inc., as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Johnson & Johnson	0	9	9	2	2.65
Merck & Co., Inc.	1	12	6	1	2.35

Johnson & Johnson presently has a consensus target price of $174.50, indicating a potential upside of 0.12%. Merck & Co., Inc. has a consensus target price of $107.4375, indicating a potential upside of 29.96%. Given Merck & Co., Inc.’s higher possible upside, analysts plainly believe Merck & Co., Inc. is more favorable than Johnson & Johnson.

Earnings & Valuation

This table compares Johnson & Johnson and Merck & Co., Inc.”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Johnson & Johnson	$88.82 billion	4.73	$14.07 billion	$9.35	18.64
Merck & Co., Inc.	$64.17 billion	3.22	$17.12 billion	$6.49	12.74

Merck & Co., Inc. has lower revenue, but higher earnings than Johnson & Johnson. Merck & Co., Inc. is trading at a lower price-to-earnings ratio than Johnson & Johnson, indicating that it is currently the more affordable of the two stocks.

Dividends

Johnson & Johnson pays an annual dividend of $5.20 per share and has a dividend yield of 3.0%. Merck & Co., Inc. pays an annual dividend of $3.24 per share and has a dividend yield of 3.9%. Johnson & Johnson pays out 55.6% of its earnings in the form of a dividend. Merck & Co., Inc. pays out 49.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Johnson & Johnson has raised its dividend for 64 consecutive years and Merck & Co., Inc. has raised its dividend for 14 consecutive years. Merck & Co., Inc. is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk and Volatility

Johnson & Johnson has a beta of 0.41, suggesting that its stock price is 59% less volatile than the S&P 500. Comparatively, Merck & Co., Inc. has a beta of 0.38, suggesting that its stock price is 62% less volatile than the S&P 500.

Profitability

This table compares Johnson & Johnson and Merck & Co., Inc.’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Johnson & Johnson	25.00%	32.49%	13.00%
Merck & Co., Inc.	25.79%	41.05%	16.55%

Insider & Institutional Ownership

69.6% of Johnson & Johnson shares are owned by institutional investors. Comparatively, 76.1% of Merck & Co., Inc. shares are owned by institutional investors. 0.2% of Johnson & Johnson shares are owned by insiders. Comparatively, 0.1% of Merck & Co., Inc. shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Summary

Johnson & Johnson beats Merck & Co., Inc. on 10 of the 18 factors compared between the two stocks.

About Johnson & Johnson

Johnson & Johnson is a holding company, which engages in the research, development, manufacture, and sale of products in the healthcare field. It operates through the Innovative Medicine and MedTech segments. The Innovative Medicine segment focuses on immunology, infectious diseases, neuroscience, oncology, cardiovascular and metabolism, and pulmonary hypertension. The MedTech segment includes a portfolio of products used in the interventional solutions, orthopaedics, surgery, and vision categories. The company was founded by Robert Wood Johnson I, James Wood Johnson, and Edward Mead Johnson Sr. in 1887 and is headquartered in New Brunswick, NJ.

About Merck & Co., Inc.

Merck & Co., Inc. is a health care company, which engages in the provision of health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. It operates through the following segments: Pharmaceutical, Animal Health, and Other. The Pharmaceutical segment includes human health pharmaceutical and vaccine products. The Animal Health segment discovers, develops, manufactures, and markets animal health products, such as pharmaceutical and vaccine products, for the prevention, treatment and control of disease in livestock, and companion animal species. The Other segment consists of sales for the non-reportable segments of healthcare services. The company was founded in 1891 and is headquartered in Rahway, NJ.