Johnson & Johnson (NYSE:JNJ) dates back more than a century and has grown to become one of the world’s most recognizable brands.
Ironically, it’s JNJ’s international scope that’s in part hurting the company at present.
The current strength of the U.S. dollar is a thorny problem for many American companies that do a lot of business overseas, and JNJ is no exception. First-quarter earnings reported in mid-April were down year-over-year — thanks in large part to currency drag — and the company has lowered its guidance.
But I like to think every cloud has a silver lining. In this case, it’s getting in on JNJ stock on the dip.
If you already hold Johnson & Johnson, you have to believe it’s only a matter of time before the stock bounces back. And if you don’t hold it, here are a few reasons you might want to.
Core Business Strength
You wouldn’t know it from the commercials, but Johnson & Johnson doesn’t just sell baby oil.
JNJ is also a player in the lucrative pharmaceutical industry, researching and developing some of the world’s most critical drugs. Among names you might have heard of: Xarelto (an anticoagulant), hepatitis C drug Olysio, and Zytiga, which is used to treat metastatic castration-resistant prostate cancer.
“The company delivered strong underlying growth in the first quarter driven by new products and the strength of the core business,” said CEO Alex Gorsky. “Of note is the continued robust growth of the pharmaceutical business and the solid performance of our consumer brands.”
Worldwide pharmaceutical sales for the quarter stand at $7.7 billion, an increase of 3% compared to the prior year. Domestic sales increased 16.9%, while international sales fell 10.7% — again, partly attributable to the strong dollar.
J&J’s M&A
Like any successful company, Johnson & Johnson continues to grow. In March, JNJ’s Janssen division announced the acquisition of XO1 Limited, “a privately held asset-centric virtual biopharmaceutical company founded to develop the anti-thrombin antibody ichorcumab.” This places the company in an even better position in a growth industry that shows no signs of slowing.
However, JNJ isn’t letting itself grow wildly. It’s looking to trim the fat in some areas, announcing last month it was in the process of selling its Cordis business to Cardinal Health Inc (NYSE:CAH) for $2 billion.
Last year, Johnson & Johnson sold its Ortho Clinical Diagnostics unit to The Carlyle Group LP (NASDAQ:CG) for more than $4 billion.
Value
When comparing JNJ to its competitors, the company stacks up well. Consider that JNJ trades at 18 times trailing earnings and 16 times next year’s estimates, with expectations of about 5% earnings growth over the next five years.
That’s a bit more favorable than sectormates such as Pfizer Inc. (NYSE:PFE), which trades at 25 and 16 with 3% estimated growth, or AstraZeneca plc (ADR) (NYSE:AZN), which trades at 70 and 17 with 3% estimated growth.
Moreover, JNJ offers security and stability, not just because of its dual can’t-miss businesses of consumer staples and pharmaceuticals, but also a long-standing, good-yielding dividend. JNJ has made dividend payments since 1944 and has grown that payout for 53 consecutive years. And it’s not meager growth, either. JNJ’s payout has grown 11.6% a year since 1997.
Bottom Line
Like many American companies that do a lot of business overseas, JNJ has been hurt by the strong dollar. But the company’s saving grace is that it continues to grow through acquisition and due to the strength of its core businesses.
JNJ may be down for now, but if the past is any indication of the future – and it usually is – the company won’t stay down forever.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
