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Johnson & Johnson (NYSE:JNJ) and Pfizer Inc. (NYSE:PFE) are among the largest companies in the world. While their business areas are diversified, both companies hold interests in health care field, particularly in the development and sales of innovative medical products. Both dividend paying companies have market caps right above $150 billion. However, their current ratios, past performance and future profit estimations are significantly different. Here is a brief comparison of Johnson & Johnson and Pfizer Inc (data from Finviz):

Johnson & Johnson is holding a company which engages in the research, development, manufacture, and sale of different products in the health care field worldwide. JNJ operates in three divisions: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. Market cap is $182.61 billion. Current dividend yield is 3.42%. EPS is expected to increase by 6.48%, and analysts estimate a 5-year EPS growth of 6.24%, while the past five-year EPS growth rate has been 7.35%. Trailing P/E ratio is 15.11, and forward P/E falls to 12.67. Johnson & Johnson has a low beta value of 0.61. Insiders own 0.03% of the company, and they increased their holdings by 15.44% in the last six months. On April 29, UBS upgraded Johnson & Johnson with a target price of $72.

Pfizer Inc. is a research-based, global biopharmaceutical company that provides prescription medicines for humans and other livings worldwide. Market cap is $165.29 billion. The trailing P/E ratio is 19.92, and a forward P/E is 9.22. Similar to Johnson and Johnson, Pfizer has a low beta value of 0.71. The current dividend yield is 3.82%. The past five-year EPS growth rate has been -0.04%, both analysts estimate an annualized EPS growth of 2.84% for the next five-year period. Net profit margins stand at 12.56%, and ROE is 9.41%. In the last quarter, sales decreased by -0.45%, but EPS increased by 11.23%. Insiders own 0.06% of the company, and they increased their holdings by 12.05% in the last six months.

Historical Comparison (Data from Morningstar):

2007

2008

2009

2010

TTM

P/E

JNJ

18.4

13.1

14.6

12.9

15.1

PFE

19.3

14.9

14.8

17.2

19.9

P/B

JNJ

4.4

3.9

3.5

3.0

3.1

PFE

2.4

2.1

1.6

1.6

1.8

P/S

JNJ

3.2

2.7

2.9

2.8

3.0

PFE

3.3

2.5

2.6

2.1

2.5

P/CF

JNJ

12.7

11.3

10.8

10.5

12.3

PFE

11.8

6.6

7.7

12.3

7.5

Dividend Yield

JNJ

2.43%

3.00%

3.00%

3.41%

3.29%

PFE

5.10%

7.23%

4.40%

4.11%

3.53%

Gross Margin

JNJ

70.95%

70.96%

70.20%

69.49%

69.35%

PFE

76.79%

83.20%

82.23%

75.99%

76.72%

Net Margin

JNJ

17.31%

20.31%

19.82%

21.65%

19.77%

PFE

16.81%

16.78%

17.27%

12.18%

12.48%

While stocks suffered greatly, neither of companies was affected by the financial crisis. Gross margin, profitability, yields, etc. did not change much. The analysis of past data shows that the fundamental ratios of Johnson & Johnson have been more stable than that of Pfizer Inc. Pfizer shareholders reacted much more than Johnson & Johnson. 2011 looks like it will be a pleasant year for Pfizer, where the profits are expected to double. Forward P/E ratio of 9.22 confirms the profitability of Pfizer shares.

While Johnson & Johnson's gross profit margins hover around 70%, the net margins are much thinner, and ttm [trailing twelve month] net profit margin falls to 19.77%. Both companies' gross margins were almost the same in the last four years. Gross margins fluctuate between 69.35% and 70.96% for JNJ, and between 75.99% and 83.20% for PFE. In 2010, while JNJ's net profit margin increased from 17.31% to 19.77%, PFE's net profit margin decreased to 12.48% from 16.81%.

Summary:

It is a really tough decision to make a choice between the two companies. Pfizer is the favorite stock of hedge funds, whereas mutual funds tend to favor JNJ. Although both similar-sized companies have almost the same market caps and operate in the same business area, Johnson & Johnson stocks have more of a margin of safety than Pfizer. Pfizer shares are already up by 22.2%, whereas JNJ's ytd performance was only 8.27%. The stocks currently trade with a trailing P/E of 15.11, and forward P/E ratio of 12.67. Analysts estimate an EPS growth of 6.24% for the next 5 years. That gives Johnson & Johnson a T-Metrix score of 3.7 out of 10, whereas Pfizer has a score of 1.8 only. If analyst estimates hold, Johnson & Johnson's shares can outperform Pfizer shares in next five years.

Source: Analysts Estimate Johnson & Johnson Can Outperform Pfizer Over Next 5 Years