Historically Johnson & Johnson (JNJ, Financial) has been a strong dividend stock that also spends heavily on buybacks. These buybacks, however, have not reduced the share count over time despite billions of dollars in spending.
Reports
Johnson & Johnson reported on Tuesday that it had a net income of $4.3 billion in the first quarter down from $4.7 billion from the previous year. Sales had fallen 4.1% to $17.4 billion with the company saying strong pharmaceutical and consumer brand sales were positives while currency created was a negative.
Not recognizing impacts from divestitures and acquisitions, Johnson & Johnson’s global sales from operations rose 5.7% with domestic sales improving 9.1%. The company’s international sales declined 4%. Johnson & Johnson’s Medical Devices segment dropped 11.4% Y-o-Y to $6.3 billion for the quarter.
In a statement on Tuesday, Chairman and CEO Alex Gorsky said, “The Company delivered strong underlying growth in the first quarter driven by new products and the strength of the core business. Of note are the continued robust growth of the Pharmaceutical business and the solid performance of our Consumer brands. I am proud of our global teams who focus every day on delivering innovative solutions to address evolving health care needs.”
Tylenol and Motrin medication as well as digestive health over-the-counter products boosted the company’s strong operational sales. Sales of Neutrogena and Aveeno skin care products; Listerine oral care products; feminine protection products and baby care products were all positive contributors to operational results.
Financial equations
Shares of the medical devices, pharmaceutical and consumer packaging Goods Company fell 1.44% to $100.60 during afternoon trading on Monday. This was ahead of Johnson & Johnson’s first quarter earnings report scheduled for Tuesday before the market opened.
Johnson & Johnson has plenty of strong assets and diversified operations that include popular drugs such as Tylenol and Zyrtec. The company also has vested interests and advances in the development of the immune system sector. Investors must look to ignoring a less than optimal first quarter earnings results report, as the company is generating around half of its revenue from overseas business. These results will be skewed by the surge of a strong dollar.
The company reported a Y-o-Y drop of nearly 1% in revenue from $18.3 billion in the fourth quarter in January 2015. This decline was due to the company suffering a drop of 4.5% when overseas sales translated back into U.S. dollars. If the dollar conversion affect is excluded from the calculation, Johnson & Johnson’s revenue would have risen approximately 4%.
Consensus estimate for Johnson & Johnson was revenue of $17.32 billion with earnings per share of $1.54. In the first quarter of last year, the company reported an identical EPS of $1.54, beating the estimate of $1.48. The company’s revenue totalled $18.115 billion, surpassing analysts’ expectations of $18.004 billion.
Analysis
Based on Johnson & Johnson’s multiple strengths, such as its largely solid financial position with reasonable debt levels, reasonable valuation levels, good operational cash flow and expanding profit margins as well as a notable return on equity, the company’s stock is being rated a BUY for now. The company boasts of successful debt level management thanks to a debt-to-equity ratio of 0.27, one that is currently below industry average. The return on equity has improved slightly from the same quarter last year. Net operating cash flow increased slightly to 5.46% when compared to the same quarter last year as well and the company exceeded the industry average cash flow growth rate of -8.61%. These are all strong takeaways that should convince investors of purchasing Johnson & Johnson stock.
