Johnson & Johnson Is a Decent Buy for Growth Investors
Johnson & Johnson is one of the World’s Most Admired Companies. The United Nations awarded Johnson & Johnson the 2011 Humanitarian of the Year award for our leading role in its Healthy Mother, Healthy Child initiative. J&J is a brand trusted by mothers the world over and has an excellent product portfolio and high quality offerings.
JNJ pays quite nice dividends with a yield at 3.2%. It is trading at $83.20 per share, with a total market cap of $233.70 billion. It is valued at nearly 10.5 times its trailing EBITDA. JNJ is a dividend aristocrat and has paid uninterrupted dividends on its common stock since 1944 and increased payments to common shareholders for 51 consecutive years. It has delivered an annualized total return of 6% to its shareholders over the past decade. There is an annual increase of 5.40% in the EPS since 2003. It is currently attractively valued at 14.60 times forward 2013 earnings. In 2012 it has increased its dividend payout ratio to 62% from 38% in 2003. Since 1972 it can be seen that Johnson & Johnson generally doubles its dividend every five years on average.
Over the past 10 years it has managed to increase its annual dividend by 11.70%. Oncology is a smaller segment for J&J and presents a substantial growth opportunity. JNJ’s global oncology drug sales grew by 33.2% during Q1 2013. J&J received a major boost a few months back when its blockbuster potential type 2 diabetes drug, Invokana (commonly known as Canagliflozin), was granted FDA approval. This year, the company approved an increase of 8.20% in its dividend payments, amounting to 66 cents per share.
Trading around $86 per share, the market values Johnson & Johnson at $242 billion, or its operating assets at $236 billion.
The potential of an impressive number of new product launches and the promise of achieving forecast sales is said to bode well for Johnson & Johnson, helping it weather the recent decline in prescription pharmaceuticals and projecting a turn-around through 2010. An increase at 1.8% CAGR across 2008 to 14 is believed to be achievable. The Johnson & Johnson pharmaceutical portfolio, and its large Medical Devices & Diagnostics (MD&D) and Consumer Health divisions serves to reduce dependence upon any one area. The company plans to continue this broadening through 2008 to 2014. This diversification allows a wider range of choice when pursuing opportunities with the greatest growth prospects.
Johnson & Johnson is in a position to strategically develop a myriad of cross selling opportunities. Using the disease life cycle as a base the company could exploit its product line in CV, oncology, diabetes and I&I therapy to formulate linkages between patents and care-giving resulting in greater efficiency. Maximizing its balance between Pharmaceuticals, Diagnostics, and Medical Devices could result in increased revenues. The addition of further biologics to its portfolio can serve as a buffer as mall molecule patents expiries. J&J is experienced in the development and commercialization of biologics —including the therapeutic proteins Procrit and Natrecor, and monoclonal antibodies Remicade, ReoPro, Simponi and Stelara. This represents an opportunity to gain key IP, product rights or strengthen discovery capabilities.
Recently, Johnson & Johnson expanded its oncology drug business by acquiring Aragon Pharmaceuticals for around $1 billion, with $650 million in upfront cash payment. With the recent acquisition, Johnson & Johnson could have the right on the company’s ARN-509, a prostate cancer drug in Phase II development, improving the company’s drug pipelines.
J&J acquired Synthes last year, and the combined J&J/Synthes orthopedic division has the broadest orthopedic portfolio globally, and the company can leverage the growth in this market better than its competitors. The acquisition is excellent, diversifying Johnson's operations, while the firm maintains a solid balance sheet. These kind of deals bolster future revenue and earnings growth, allowing the company to pay a fat dividend yield of 3.1% in the meantime, despite shares trading near all-time highs.
JNJ stock has done well this year, growing by roughly 20%. The company’s pharmaceutical division is showing strength, and its consumer business is doing better due to improvements in supply chain and manufacturing. It is expected to create shareholder value.
Investors should continue to watch Johnson & Johnson as the company looks poised for good growth, and it has a solid track record in terms of rewarding its investors with dividends as well as a very diversified business with its focus across the pharmaceutical, consumer and medical devices segments.