Johnson & Johnson (NYSE:JNJ) is a holding company. The company is engaged in the research and development, manufacture and sale of a broad range of products in the health care field. The business of Johnson & Johnson is conducted by more than 275 operating companies located in 60 countries, including the U.S., which sell products in virtually all countries throughout the world.
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 its 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.
Tracking the Performance
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.
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- JNJ 15-Year Financial Data
- The intrinsic value of JNJ
- Peter Lynch Chart of JNJ
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 first quarter 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.
On an Acquisition Spree
J&J acquired Synthes, and the combined J&J/Synthes orthopedic division has the broadest orthopedic portfolio globally. 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 kinds of deals bolster future revenue and earnings growth.
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.
Expecting More Is Not Bad Always
As another solid quarter goes into the books, JNJ continues to be a med-tech story driven largely by the success of its drug platform. Given the growth potential of the company's platform in immunology, oncology, virology and metabolic disease, that's not likely to change anytime soon.
Johnson & Johnson not only has the ongoing growth of its established drug portfolio to benefit sales, but also the ongoing growth of newer compounds like Zytiga, Xarelto, Invokana and Imbruvica. JNJ has a decent shot of getting to $2 billion with this drug. With so many potential billion-dollar drugs relatively early in their marketing lives, I believe JNJ can look forward to a long stretch of good growth from its drug business. The company can continue reinvesting as necessary, whether through licensing agreements or acquisitions, as the returns in the pharmaceutical business favor more investment relative to the device business.
The Johnson & Johnson pharmaceutical portfolio, and its large Medical Devices & Diagnostics (MD&D) and Consumer Health divisions, serve 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 expire. 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.
In the News
The British consumer goods company Reckitt Benckiser (RB) said that it had acquired the rights to the K-Y brand of personal lubricants from JNJ. No fixed assets or employees are included in the transaction, which is expected to be completed in the middle of this year, Reckitt said. The terms of the transaction were not released.
The K-Y brand began as a prescription medical product in 1917 and has been sold over the counter since 1980. The brand, which is available in more than 50 countries, had sales of more than $100 million in 2013.
Reckitt owns the Durex brand of condoms and manufactures a variety of consumer products, including Air Wick air fresheners, Lysol cleaning sprays and French’s mustard. The K-Y deal is subject to regulatory approval.
Johnson & Johnson has a great long-term track record for rewarding investors. Its products should benefit with current demographic trends in the developed world. Johnson & Johnson has shown the ability to continuously expand sales over its recent history.
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.
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.