In this series, we are going to value the common equity shares of Johnson & Johnson (JNJ), Merck (MRK), Pfizer (PFE), and Abbott Labs (ABT). In this article, we'll analyze the financial performances and positions of these firms between 2008 and 2011. Further, we'll examine the effectiveness of management and the financial leverage of the four firms. Doing in-depth research and analysis of these firms takes several articles and this is part one. In part two we'll cover more recent financial performances and positions of these firms. Parts three and four will cover valuations. Parts five through seven will cover the economic dynamics impacting these firms, the portfolio management aspects, and the conclusions and recommendations.
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| JNJ | MRK | PFE | ABT | |
| 2008 | 63747 | 23850 | 48296 | 29527.6 |
| 2009 | 61897 | 27428 | 49269 | 30764.7 |
| 2010 | 61587 | 45987 | 67057 | 35166.7 |
| 2011 | 65030 | 48047 | 67425 | 38851.3 |
After a slight decline in 2009 and 2010, Johnson & Johnson's revenue increased in 2011 to $65 billion. Merck, Pfizer and Abbott did an excellent job of increasing revenue betwen 2008 and 2011. Pfizer surpassed Johnson & Johnson as the largest by revenue in 2010. Merck's revenue is the most risky and Johnson & Johnson's is the least risky.
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| JNJ | MRK | PFE | ABT | |
| 2008 | 12949 | 7808 | 8104 | 4880.7 |
| 2009 | 12266 | 12899 | 8635 | 5745.8 |
| 2010 | 13334 | 861 | 8257 | 4626.2 |
| 2011 | 9672 | 6272 | 10009 | 4728.5 |
Johnson & Johnson's net income declined substantially in 2011 to $9.7 billion. Merck's net income has a high standard deviation and was below the 2009 peak in 2011. Pfizer's net income is increasing and surpassed the $10 billion mark in 2011. Abbott's net income has been flat over the past four years.
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| JNJ | MRK | PFE | ABT | |
| 2008 | 14972 | 6571.7 | 18238 | 7344.2 |
| 2009 | 16571 | 3392 | 16587 | 7275.2 |
| 2010 | 16385 | 10822 | 11454 | 8736 |
| 2011 | 14298 | 12383 | 20240 | 8970.1 |
The cash flow performance for the firms excluding Johnson & Johnson was excellent. I'm impressed with Abbott's ability to generate cash flow from operations.
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| JNJ | MRK | PFE | ABT | |
| 2008 | 42511 | 18758.3 | 57556 | 17479.6 |
| 2009 | 50588 | 59058 | 90014 | 23144.3 |
| 2010 | 56579 | 54376 | 87813 | 22676.8 |
| 2011 | 57080 | 54517 | 82190 | 24439.8 |
Between 2008 and 2011, all four firms increased total equity. Merck's and Pfizer's total equity declined in recent years. That said, Abbott and Johnson & Johnson consistently increased the book value of equity.
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| JNJ | MRK | PFE | ABT | |
| 2008 | 84912 | 47195.7 | 111148 | 42419.2 |
| 2009 | 94682 | 112314 | 212949 | 52581.6 |
| 2010 | 102908 | 105781 | 195014 | 60573.9 |
| 2011 | 113644 | 105128 | 188002 | 60276.9 |
All four firms assets increased compared to 2008. Johnson & Johnson's assets increased every year. Abbott's assets increased every year except 2011. Merck's and Pfizer's assets declined the past few years.
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| JNJ | MRK | PFE | ABT | |
| 2008 | 12809 | 5486.4 | 24555 | 5079.6 |
| 2009 | 19425 | 9604 | 27164 | 9932 |
| 2010 | 27658 | 12201 | 28479 | 5451.5 |
| 2011 | 32261 | 14972 | 26809 | 8097.4 |
The cash balances have increased. Johnson & Johnson and Pfizer have the most cash. Abbott Labs has the least amount of cash.
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Johnson & Johnson's share of revenue declined substantially while Merck's increased substantially. Pfizer's share of revenue increased and Abbott's is flat.
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Pfizer and Johnson & Johnson were the most profitable firms in 2011. Abbott was the least profitable. The profitability declined for all four firms.
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Pfizer and Abbott have the highest financial leverage. That means that if EBIT increases, earnings will increase by a greater amount for Pfizer and Abbott.
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In terms of return on equity, Johnson & Johnson and Abbott are leading the group. Overall, return on equity is declining.
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Return on assets is declining. Johnson & Johnson and Abbott are leading the group in this category.
To be continued...
Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
