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JNJ - Johnson & Johnson - Profile, Risk, Opportunity

|Includes:ABT, GSK, Johnson & Johnson (JNJ), LLY, MDT, MRK, NVS

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
Click to enlarge

 

Stocks: JNJ, MRK, ABT, LLY, NVS, GSK, MDT