Johnson & Johnson (JNJ, Financial) posted a strong quarter with year over year growth in profit, and also topped the Street's expectations. Although if we look at revenue we could see some downside, which was mainly on account of a strong dollar along with a stiff competition from its peers. But looking from a long-term perspective the company has strong fundamentals, which will boost its growth in the days ahead.
A strong financial position bodes well for the long run
In fact, Johnson & Johnson is one of the three companies to be Triple A rated by all three major credit agencies. This is not only a matter of good name, but it will help the company with various benefits in the financial markets, which will be a decisive factor to drive its growth. And now, as the present environment calls for ever increasing health care measures, J&J seems to be well on track to tap this potential.
The company operates in three core segments and will use different strategies for each one of them. Starting with its medical devices business, the emphasis will be on growth acceleration from innovation and alongside transforming its go-to-market models. When purchasing decisions are made from healthcare system level, many ground realities are missed.
This transformation is significant for J&J since it is trying to improve the quality of care provided to patients at reasonable cost. Talking about consumer segment, it is expanding its market-leadership in key segments within the, over-the-counter medicines, oral care, baby and beauty markets. While in pharmaceuticals, it will continue to build on its launch excellence and robust pipeline.
What will drive growth
From an application point of view let’s consider these aspects in detail. Starting with its medical devices business, the company has a strong leadership in orthopedics, electrophysiology, surgery and vision care. With this expertise it is growing in emerging markets and is capitalizing on its vast product portfolio offering them to governments, large healthcare systems and large payors in the international market. It currently has more than thirty new filings pending, which will further add value to its portfolio in the coming months.
Talking about its consumer brands, it is driven by innovation and has a very focused approach to meet the requirements of its customers. In recent years, J&J has acquired significant ground in this segment, which is clearly evident from its recent market-share trends. Statistics reveal that its consumption is growing at four times the market, particularly in children’s TYLENOL and MOTRIN. These are encouraging facts reflecting the strength in its business.
In pharmaceuticals, J&J has come a long way since it lost $8.5 billion of sales to patent expiry six years ago. Now, it is the industry leader in terms of research and development and continues to launch new products. In 2014 it had 20 new line extensions approved and filed an additional 20. Also it started 23 Phase 3 trials and initiated eleven Phase 2 trials and currently is poised to yield ten potential new product filings between 2013 and 2017. With these developments, the company will be able to launch outstanding products in its pharmaceutical business in the days ahead.
Moreover, its recent plans to establish a Lung Cancer Center in China is a fine example of its expertise in this segment. The purpose of this facility is to make lung cancer a preventable and curable disease with the help of its R&D, medical device, pharmaceutical and consumer experts. This clearly illustrates the versatility of the types of enterprise wide solutions it can offer. The company is already in talks with governments in other countries as well to establish such models that will keep a check on this disease, which is rapidly spreading across the globe.
These are some mind-boggling developments adopted by the management, which gives the company an edge over its peers. Especially, the innovation of its product portfolio is extremely admirable as only few companies dare to take its research at such levels, and Johnson & Johnson is one among them. In the light of these facts, the company seems to be on the right track to continue its momentum.
Conclusion
It currently has a trailing P/E of 16.81 compared to the industry P/E of 26.18 and its forward P/E is even more impressive at 15.66, reflecting that its earnings will improve. The stock touched its 52-week high few months back and looking at its future prospects we could expect more upside to this stock.
