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Guru Investment Theses on Johnson & Johnson

John Rogers' Ariel Fund Comments on Johnson & Johnson - Feb 28, 2014

Johnson & Johnson (JNJ) was a true favorite in the 1990s mega-cap bull market, with its glory days persisting until the end of 2002. From that point through 2010, it hit a relative rough patch. During the 1991 to 2002 period, Johnson & Johnson's revenues gained a remarkable +10.2% annually; in the subsequent period they slipped to a still-solid +6.8%. Its earnings decline was not as steep. The company compounded earnings per share (EPS) at a remarkable +13.6% in the 1990s and early 2000s period before slipping to +10.4% annually in the second era. Its price/earnings (P/E) ratios showcased its increasing popularity in the first period, as well as its fall from grace. Johnson & Johnson's earnings multiple soared from 26.1x in 1991 to a lofty 37.6x in 1998 before drifting down in the bear market to 24.9x at the end of 2002. From there it plummeted, however, to a low of just 12.9x at the end of 2010. Note that while investors chopped its P/E multiple in half from 2002 to 2010, its earnings per share more than doubled...

After its slide in the current century, Johnson & Johnson took the opportunity to reinvigorate itself. Alex Gorsky, who became CEO in 2012, led a major transformation; he charged his new operations head, Sandra Peterson, with structural improvements across the company. On the pharmaceutical side, it refocused its Research & Development (R&D) on blockbuster segments such as anti-coagulants and oncology. In its medical technology division, the company boldly exited the underperforming drug-eluding stent business and deployed foreign cash through the acquisition of high-margin specialty implant maker Synthes, a Swiss company. Johnson & Johnson even bolstered its consumer brands such as Neutrogena and Band-Aid, which offer lower margins but steady cash flows. More importantly, it has gotten past the embarrassing 2010 recalls of the children's versions of Tylenol, Motrin, Zyrtec and Benadryl, and all four are now back on the shelves. We always look forward, even when analyzing a 127-year old company, and at this point see a lean, mean heavyweight ready to compete.

From John Rogers (Trades, Portfolio)' Ariel International Fund & Ariel Global Fund fourth quarter 2013 commentary by Rupal J. Bhansali.

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Ratios

vs
industry
vs
history
P/E(ttm) 19.60
JNJ's P/E(ttm) is ranked higher than
88% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 41.40 vs. JNJ: 19.60 )
JNJ' s 10-Year P/E(ttm) Range
Min: 10.5   Max: 24.45
Current: 19.6

10.5
24.45
P/B 3.80
JNJ's P/B is ranked higher than
65% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 3.22 vs. JNJ: 3.80 )
JNJ' s 10-Year P/B Range
Min: 2.68   Max: 6.21
Current: 3.8

2.68
6.21
P/S 4.10
JNJ's P/S is ranked higher than
66% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 3.55 vs. JNJ: 4.10 )
JNJ' s 10-Year P/S Range
Min: 2.16   Max: 4.28
Current: 4.1

2.16
4.28
PFCF 19.10
JNJ's PFCF is ranked higher than
92% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 9999.00 vs. JNJ: 19.10 )
JNJ' s 10-Year PFCF Range
Min: 10.29   Max: 24.69
Current: 19.1

10.29
24.69
EV-to-EBIT 14.44
JNJ's EV-to-EBIT is ranked higher than
88% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 32.81 vs. JNJ: 14.44 )
JNJ' s 10-Year EV-to-EBIT Range
Min: 8.4   Max: 18.7
Current: 14.44

8.4
18.7
PEG 9.30
JNJ's PEG is ranked higher than
77% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 367.50 vs. JNJ: 9.30 )
JNJ' s 10-Year PEG Range
Min: 1.18   Max: 246
Current: 9.3

1.18
246
Shiller P/E 22.10
JNJ's Shiller P/E is ranked higher than
90% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 9999.00 vs. JNJ: 22.10 )
JNJ' s 10-Year Shiller P/E Range
Min: 13.04   Max: 31.12
Current: 22.1

13.04
31.12
Current Ratio 2.41
JNJ's Current Ratio is ranked higher than
70% of the 761 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 2.31 vs. JNJ: 2.41 )
JNJ' s 10-Year Current Ratio Range
Min: 1.2   Max: 2.69
Current: 2.41

1.2
2.69
Quick Ratio 2.07
JNJ's Quick Ratio is ranked higher than
74% of the 761 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 1.68 vs. JNJ: 2.07 )
JNJ' s 10-Year Quick Ratio Range
Min: 0.94   Max: 2.37
Current: 2.07

0.94
2.37

Dividend & Buy Back

vs
industry
vs
history
Dividend Yield 2.60
JNJ's Dividend Yield is ranked higher than
79% of the 453 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 1.37 vs. JNJ: 2.60 )
JNJ' s 10-Year Dividend Yield Range
Min: 1.64   Max: 3.84
Current: 2.6

1.64
3.84
Dividend Payout 0.42
JNJ's Dividend Payout is ranked higher than
89% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 9999.00 vs. JNJ: 0.42 )
JNJ' s 10-Year Dividend Payout Range
Min: 0.29   Max: 13.89
Current: 0.42

0.29
13.89
Dividend growth (3y) 7.10
JNJ's Dividend growth (3y) is ranked higher than
82% of the 317 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 0.50 vs. JNJ: 7.10 )
JNJ' s 10-Year Dividend growth (3y) Range
Min: 7.1   Max: 17.1
Current: 7.1

7.1
17.1
Yield on cost (5-Year) 3.72
JNJ's Yield on cost (5-Year) is ranked higher than
87% of the 461 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 1.39 vs. JNJ: 3.72 )
JNJ' s 10-Year Yield on cost (5-Year) Range
Min: 2.34   Max: 5.49
Current: 3.72

2.34
5.49
Share Buyback Rate -1.00
JNJ's Share Buyback Rate is ranked higher than
75% of the 556 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: -1.70 vs. JNJ: -1.00 )
JNJ' s 10-Year Share Buyback Rate Range
Min: 2   Max: -4.9
Current: -1

Valuation & Return

vs
industry
vs
history
Price/Tangible Book 10.80
JNJ's Price/Tangible Book is ranked higher than
56% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 5.40 vs. JNJ: 10.80 )
JNJ' s 10-Year Price/Tangible Book Range
Min: 6.25   Max: 20.45
Current: 10.8

6.25
20.45
Price/DCF (Projected) 1.60
JNJ's Price/DCF (Projected) is ranked higher than
92% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 9999.00 vs. JNJ: 1.60 )
JNJ' s 10-Year Price/DCF (Projected) Range
Min: 0.84   Max: 3.6
Current: 1.6

0.84
3.6
Price/Median PS Value 1.30
JNJ's Price/Median PS Value is ranked higher than
66% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 1.20 vs. JNJ: 1.30 )
JNJ' s 10-Year Price/Median PS Value Range
Min: 0.69   Max: 1.88
Current: 1.3

0.69
1.88
Price/Graham Number 3.00
JNJ's Price/Graham Number is ranked higher than
74% of the 806 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 4.60 vs. JNJ: 3.00 )
JNJ' s 10-Year Price/Graham Number Range
Min: 1.95   Max: 6.12
Current: 3

1.95
6.12
Earnings Yield (Greenblatt) 6.90
JNJ's Earnings Yield (Greenblatt) is ranked higher than
81% of the 624 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 4.90 vs. JNJ: 6.90 )
JNJ' s 10-Year Earnings Yield (Greenblatt) Range
Min: 5.3   Max: 11.9
Current: 6.9

5.3
11.9
Forward Rate of Return (Yacktman) 1.93
JNJ's Forward Rate of Return (Yacktman) is ranked higher than
73% of the 622 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 2.97 vs. JNJ: 1.93 )
JNJ' s 10-Year Forward Rate of Return (Yacktman) Range
Min: 1   Max: 18.2
Current: 1.93

1
18.2

Business Description

Industry: Drug Manufacturers » Drug Manufacturers - Major
Compare:GSK, PFE, RHHBY, NVS, ABT » details
Traded in other countries:JNJ.Germany
Johnson & Johnson was incorporated in the State of New Jersey in 1887. The Company is engaged in the research and development, manufacture and sale of a range of products in the health care field. It is a holding company, which has more than 250 operating companies conducting business in virtually all countries of the world. The Company's operating companies are organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment includes a range of products used in the baby care, skin care, oral care, wound care and women's health care fields, as well as nutritional and over-the-counter pharmaceutical products. The Baby Care franchise includes the JOHNSON'S Baby line of products. Major brands in the Skin Care franchise include the AVEENO; CLEAN & CLEAR; JOHNSON'S Adult; NEUTROGENA; RoC; LUBRIDERM; Beijing Dabao Cosmetics Co., Ltd.; and Vendome product lines. The Oral Care franchise includes the LISTERINE and REACH oral care lines of products. Major brands in the Women"s Health franchise are the CAREFREE Pantiliners and STAYFREE sanitary protection products. The nutritional and over-the-counter lines include SPLENDA, No Calorie Sweetener; the family of TYLENOL acetaminophen products; SUDAFED cold, flu and allergy products; ZYRTEC allergy products; MOTRIN IB ibuprofen products; and PEPCID AC Acid Controller from Johnson & Johnson Merck Consumer Pharmaceuticals Co. The Pharmaceutical segment includes products in the following therapeutic areas: anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. Key products in the Pharmaceutical segment include: REMICADE a biologic approved for the treatment of Crohn's disease, ankylosing spondylitis, psoriasis, psoriatic arthritis, ulcerative colitis, and use in the treatment of rheumatoid arthritis; TOPAMAX approved for adjunctive and monotherapy use in epilepsy, as well as for the prophylactic treatment of migraines; PROCRIT biotechnology-derived product that stimulates red blood cell production; RISPERDAL oral a medication that treats the symptoms of schizophrenia, bipolar mania and irritability associated with autistic behavior in indicated patients. RISPERDAL CONSTA, a long-acting injectable, and INVEGATM Extended-Release tablets, for the treatment of schizophrenia; LEVAQUIN and FLOXIN, both in the anti-infective field; CONCERTA, a product for the treatment of attention deficit hyperactivity disorder; ACIPHEX/PARIET, a proton pump inhibitor co-marketed with Eisai Inc.; and DURAGESIC/Fentanyl Transdermal a treatment for chronic pain that offers a novel delivery system. The Medical Devices and Diagnostics segment includes a range of products distributed to wholesalers, hospitals and retailers, used mainly in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. In a
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