Welcome to the Stock of the Day.
Healthcare and consumer goods giant Johnson & Johnson (JNJ) is dominating headlines today after word got out that it is selling its diagnostics unit to Carlyle Group (CG) for $4.15 billion. Now that Johnson & Johnson is shedding its slow-growing business to focus on more profitable lines, is this a buying opportunity?
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.
Industry Breakdown
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, fifth in biologics, sixth in consumer health and eighth in pharmaceuticals. This market dominance translates into industry-leading financial performance as well. Johnson & Johnson ranks in the top quartile in terms of earnings growth, and the top 15% on long-term growth rate and return on equity. The stock also pays a 2.8% dividend, making it the ninth highest in an industry with over 250 players.
Looking Ahead
Johnson & Johnson is scheduled to report quarterly results on January 20, and it’s looking optimistic on several fronts. While Johnson & Johnson has experienced pricing pressures in the U.S., the medical devices unit continues to make inroads in China and India.
The company also continues to grow its pipelines with new drug applications and strategic collaborations. For the previous quarter, the analyst community is forecasting $1.20 EPS on $17.95 billion in sales. This would cap a solid year for the company in which J&J grew sales 5.5% over last year and earnings by 7.5%.
Looking ahead to FY 2014, Johnson & Johnson is expected to post 4.4% top-line and 6.9% bottom-line growth. Not bad for a 128-year-old company.
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 (A), return on equity (A) and cash flow (B), while its earnings growth, earnings momentum and analyst earnings revisions need some work (all Cs). 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.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!
