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Kenneth Lam
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A certified public accountant and chartered accountant with more than 10 years of investing experience. My favourite quote from Warren Buffett: "It's only when the tide goes out that you learn who's been swimming naked."
  • JNJ - Johnson & Johnson - Profile, Risk, Opportunity 1 comment
    Mar 6, 2011 11:40 PM | about stocks: JNJ, MRK, ABT, LLY, NVS, GSK, MDT

    Profile:

    • Consists of three segments (Consumer, Pharmaceutical, Medical device & diagnostics)
    • Consumer accounts for only 10% of operating profit
    • The remaining 90% of operating profit is shared equally by pharmaceutical and medical device & diagnostics)
    • 52% revenue outside US

     

    Risk:

    • Product recalls and suspension of production at McNeil facility in 2010 (resulting in $900M sales reduction, insignificant comparing to $60B worldwide sales)
    • Operational issues call into question the current CEO’s competence
    • Health care reform in US estimated by the company to reduce sales by $500M and impose a fee of $200M in 2011 (insignificant comparing to $13B net income in 2010)
    • Competition from generic drugs for patent expired drugs              

     

    Opportunity:

    • Dividend increased every year (compound annual growth rate of 13%) since the current CEO took the job in 2002
    • Regarding McNeil situation, alternate supplies of products are planned to be available in the latter half of 2011
    • Significant portion of products are protected by patents
    • 2011 sales forecasted to grow by 4%
    • Negatively impacted by McNeil situation, 2010 operating profit still grew by 7%
    • $24B working capital as of 2010 year end
    • high dividend %
    • More demand from aging population

     

    Themes: Johnson, Merck, dividend, McNeil Stocks: JNJ, MRK, ABT, LLY, NVS, GSK, MDT
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  • Author’s reply » I forgot to mention the DePuy recall in the segment of medical device and diagnostics. DePuy's total sales of all its products was around $5B in 2010, 10% of the entire company, with higher margin. A serious reduction of sales can hurt earnings in a meaningful way. However, US sales in medical device actually advanced 1.6% in Q4 vs 2009. In terms of litigation, there are 93,000 individuals who have received the implant and may file a claim. However, only 13% needed a second surgery or 8% above the normal level. Assuming $500K is paid to each of the 8% patients, the company will have to give out $3.7B. This figure is only 2% of the company's current market value of $160B.

     

    bloomberg.com/news...
    7 Mar 2011, 01:19 PM Reply Like
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