Johnson & Johnson A Stable Long-Term Buy

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Johnson & Johnson (NYSE:JNJ) reported fourth quarter adjusted earnings per share of $1.19 on net earnings of $3.4 billion. Compared to the fourth quarter of 2011 EPS and net earnings were $0.06 and $247 million higher, respectively. Fourth quarter earnings beat Bloomberg analysts' estimates by $0.02.

In 2012, adjusted earnings per share were $14.3 billion resulting in EPS of $5.10. EPS and net earnings were $0.10 and $478 million higher than 2011, respectively.

The company's growth in earnings was attributed to improvements in sales for the company's three business segments, specifically driven by the Medical Devices and Diagnostics business.

Quarter-over-quarter top-line revenue increased 8 percent from $16.3 billion to $17.6 billion. Year-over-year, sales grew 3.4 percent from $65.0 billion to $67.2 billion.

Medical Devices and Diagnostics represented the greatest sales growth for the company both quarter-over-quarter and year-over-year, increasing 13.7 percent and 6.4 percent, respectively. In 2012, MD&D represented 41 percent of total sales at $27.4 billion.

The company's successful acquisition and integration of Synthes, Inc. contributed to the segment's strong growth. In its fourth quarter earnings presentation, the company also highlighted its divestiture of the RhoGAM diagnostics business and announced exploratory options for divestiture of Ortho Clinical Diagnostics which would further streamline profitability in the segment.

The company's Pharmaceutical business segment was the second largest contributor to sales in 2012 representing 38 percent.

Quarter-over-quarter, sales from the Pharmaceutical business segment increased 7.1 percent and year-over-year sales were $25.4 billion higher, an increase of 4 percent. Sales growth from Pharmaceutical was driven by industry leading products, namely REMICADE, ZYTIGA, INVEGA SUSTENNA and INCIVO.

The company's final business segment, Consumer, decreased 0.4 percent quarter-over-quarter and 2.9 percent year-over-year, reflecting weaker economic demand in the post-recessionary environment.

Overall, the company's targeted business focus, product development and integration of core businesses helped it to continue its success in 2012. Alex Gorsky, Chairman and CEO, reinforced the firm's success in the fourth quarter earnings presentation by noting the company's achievement of 29 consecutive years of adjusted earnings increases and 50 consecutive years of dividend increases.

In 2013 investors can expect Johnson & Johnson to continue its commitment to the healthcare sector through increased sales of existing products, new product launches and research and development projects that provide innovative solutions for the industry. Specifically, the company expects to continue product sales momentum internationally, expanding on growth opportunities in Europe, the Middle East, Africa and Japan.

According to earnings projections by Dominic Caruso, CFO and Vice President of Finance, Johnson & Johnson expects continued year-over-year growth in sales of 5.5 percent to 6.5 percent in 2013, surpassing 2012's sales growth rate of 3.4 percent. Caruso reported earnings per share guidance of $5.35 to $5.45 at the projected sales rate outlined, slightly lower than Bloomberg analysts' previous consensus of $5.49, but still significant year-over-year improvement for the company.

At a current stock price of $72.92 Johnson & Johnson appears slightly undervalued. Based on Bodie, Kane and Marcus' intrinsic value formula the company has a one-year price target1 of $74.82. Johnson & Johnson's stability, 2013 outlook and long-term future growth potential make it a strong long-term buy opportunity at the current price.

1 The price target is derived from Bodie, Kane and Marcus' intrinsic value formula. The intrinsic value formula discounts the projected one-year future cash flow value by the risk-free rate on the one-year Treasury note plus a beta of 0.44 times the market's expected one-year risk premium. The market risk premium assumes stock market appreciation in 2013 to be similar to 2012 and is based on Dow Jones Industrial Average index return.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Drug Manufacturers - Major, Earnings
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