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Healthcare and consumer goods giant Johnson & Johnson (JNJ) is dominating headlines today after it announced plans to sell its diagnostics unit to Carlyle Group (CG) for over $4 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.
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 $71 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, fifth in biologics, sixth in consumer health and eighth in pharmaceuticals. The stock also pays a 2.6% dividend, making it one of the highest in an industry with over 250 players.
Johnson & Johnson is scheduled to report first-quarter results on April 15, but I don’t expect it to turn heads. For the current quarter, the analyst community is forecasting $1.48 EPS on $18 billion in sales. Compared with Q1 2013 this would represent 2.8% sales growth and 2.8% earnings growth.
Looking ahead to full-year 2014, Johnson & Johnson is expected to post 4% top-line and 5.6% bottom-line growth. Not bad for a 128-year-old company, but also not the kind of earnings I look for in my top blue chip picks.
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On the fundamentals side, Johnson & Johnson gets a solid B-level rating from me. Johnson & Johnson’s strong suits are its operating margin growth (B), earnings growth (B) and return on equity (A) , while its sales growth, earnings momentum and analyst earnings revisions need some work (all Cs).
But the reason that I have Johnson & Johnson stock down at a C-rated hold is because buying pressure, a measure of a stock’s risk/return ratio, has tapered off of late. JNJ receives a C for its Quantitative Grade.
Bottom Line: As of this posting, March 31, I consider Johnson & Johnson stock a C-rated Hold. With its solid dividend yield this is a good hold if you already own shares but I wouldn’t recommend it for new money at this time.
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