To be blunt, the bulk of Johnson & Johnson’s current earnings problems ultimately boil down to sloppy oversight. Someone should have caught the labeling problems with its Children’s Motrin before the label was printed. Someone should have known that complaints about its insulin pumps couldn’t be hidden forever. Someone should have known a lack of a quality control plan at the McNeil facility was a ticking time bomb.
None are forgivable, though all are fixable. It’s just a matter of accountability, and that’s a corporate culture a military mind is very, very good at fostering. Realistically, Grosky could have those internal control problems solved within a year.
At that point, Johnson and Johnson could be an investment-worthy fighting machine again.
See, while the company dropped several balls leading to a stunning 30 recalls since 2009, the things that made Johnson & Johnson great at one time never really went away. A big chunk of that greatness was the fact that J&J is the combination of some great consumer and OTC products (like Listerine, Band-Aid and even the troubled Tylenol brand) as well as pharmaceuticals (such as Remicade, Concerta, and Levaquin) on top of an impressive medical device and diagnostic arm (which many investors might be surprised to learn is actually the company’s biggest revenue generator).
It ultimately remains to be seen if Gorsky is an innovator and leader when it comes to developing new drugs, or understanding which drugs or companies Johnson & Johnson needs to acquire. But that’s not the immediate concern.
Right now, the company is losing hundreds of millions of dollars per year on the missing sales of products that are currently off the market. And the company has been fined billions of dollars for botching its oversight. All of those problems seem to be on the table, though, meaning things have gotten as bad as they can get — for the company as well as the stock. From here, it’s likely a one-to-three-year turnaround story for all three divisions, with Gorsky poised to lead the charge. Thing is, the market likes good companies, but it loves turnaround stories.
In other words, JNJ actually has little downside left to give, but more long-term upside than it might seem with just a quick glance.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.