Welcome to the Stock of the Day!
Healthcare and consumer goods giant Johnson & Johnson (JNJ) is dominating headlines after the company tentatively agreed to a settlement that could cost the company up to $4 billion!
The settlement would put to bed some 12,000 lawsuits related to the controversial DePuy all-metal replacement-hips. Will J&J rebound from this potentially record-breaking settlement (as well as its ongoing $2.2 billion settlement with the Department of Justice)?
Let’s find out now.
Company Profile
Johnson & Johnson is not just a power player in the big pharma industry, it also began as a family company. Founded in 1886, the three Johnson brothers sought to spread the practice of, and become the standard for, sterile surgery in the U.S.
That mission continues today, only now, the company maintains this standard worldwide. JNJ has grown to become a $67 billion company, with hundreds of products in more than 170 countries worldwide.
From oral care, baby care, and skin care products, to over-the-counter medicines, JNJ has a broad consumer reach and relies on its reputation as a trusted family company to market its products and remain a leading competitor in the global pharmaceutical industry. JNJ is first in medical devices and diagnostics, fifth in biologics, sixth in consumer health and eighth in pharmaceuticals.
Earnings Rundown
Johnson & Johnson has been working overtime to expand its pipeline and focus on its core businesses, and its hard work clearly paid off in the third quarter. Last quarter, sales at Johnson & Johnson’s pharmaceuticals unit advanced 10% over Q3 2012. Breaking it down, sales of prostate cancer-cancer drug Zytiga soared 75% while sales of immunology drugs Simponi and Stelara also saw double-digit sales gains.
But the real winner was anticoagulant Zarelto—sales nearly tripled! This helped to offset a 2% drop in sales at the company’s medical devices division as fewer customers sought elective surgery in the third quarter.
Looking at the entire company, revenue climbed 3% year-over-year to $17.58 billion, topping the $17.43 billion consensus estimate. Meanwhile, net income ticked up to $2.98 billion (compared with $2.97 billion in the same period prior year). Adjusted earnings weighed in at $1.36 per share—analysts had forecast earnings of $1.32 per share so Johnson & Johnson posted a 3% earnings surprise.
Looking Ahead
Even with the looming settlement, management is optimistic on several fronts. While it is facing pricing pressures in the U.S., the medical devices unit continues to make inroads in China and India. Additionally, the company continues to progress its pipelines with new drug applications and strategic collaborations. So the company lifted its full-year 2013 guidance to a range of $5.44 to $5.49 per share. Analysts expect earnings of $5.48 per share so this is well within the Street view.
As J&J works to expand its global reach, its commitment to its shareholders has remained the same. Following the earnings report the company declared a quarterly dividend payment of 66 cents per share. Shareholders of record on November 26 will be paid on December 10. The stock currently yields 2.8%, putting it in the top ten among drug manufacturers (an industry with 260 players).
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Johnson & Johnson gets a solid B-level rating from me. This year, shares of JNJ have found renewed strength as institutional buying pressure has risen. At the same time, there is some room for improvement on the fundamentals side.
Johnson & Johnson’s strong suits are its operating margin growth, return on equity and cash flow, while its earnings growth, earnings momentum and analyst earnings revisions need some work. JNJ receives an A for its Quantitative Grade and a C for its Fundamental Grade.
Bottom Line
As of this posting I consider JNJ a B-rated Buy. Even these billion-dollar settlements shouldn’t break this company’s stride as a world leader in healthcare.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!
