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Analyse aandeel Johnson & Johnson

Johnson & Johnson ziet relatief maar enkele belangrijke patenten aflopen in de komende vijf jaar. (Engelstalig rapport)

Damien Conover, CFA 02 oktober, 2014 | 11:54

INVESTMENT THESIS

Johnson & Johnson stands alone as a leader across the major health-care industries. The company maintains a diverse revenue base, a robust research pipeline, and exceptional cash flow generation that together create a wide economic moat.

Johnson & Johnson holds a leadership role in diverse health-care segments, including medical devices, over-the-counter products, and several pharmaceutical markets. Contributing just over a third of total revenue, the pharmaceutical division boasts several industry-leading drugs, including immunology drug Remicade and psoriasis drug Stelara. The medical device and diagnostics group brings in more than 40% of sales, with the company holding controlling positions in many areas, including orthopedics and Ethicon Endo-Surgery's surgical devices. The recent acquisition of Synthes positions the company as a leader in the fast-growing trauma segment. The consumer division largely rounds out the remaining business lines. The 2007 acquisition of Pfizer's consumer business solidified Johnson & Johnson's position in this market.

Research and development efforts are resulting in next-generation products. The pharmaceutical group has a robust late-stage product pipeline with several potential blockbusters in late-stage development or recently approved. The company has also created new medical devices, including ceramic orthopedics and minimally invasive surgical tools.

These multiple business lines generate substantial cash flow. Johnson & Johnson's healthy free cash flow (operating cash flow less capital expenditures) is close to 20% of sales. Strong cash generation has enabled the firm to increase its dividend for over the past 50 years, and we expect this to continue. It also allows Johnson & Johnson to take advantage of acquisition opportunities that will augment growth.

Diverse operating segments coupled with expected new products insulate Johnson & Johnson from the patent cliff facing the pharmaceutical group. Further, in contrast to most of its peers, Johnson & Johnson faces relatively modest patent losses during the next few years.


VALUATION

Economic Moat   Fair value   Stewardship Rating   Medicine
Wide   USD 99.00    Standard  
Moat Trend   Uncertainty   Sector  
Stable   Low  

Healthcare 


BULLS

  • Johnson & Johnson faces relatively few major patent losses over the next five years.

  • Diverse health-care segments insulate the company from downturns in the economy, offering a defensive growth opportunity.

  • The majority of J&J's key drugs are specialty drugs, which tend to carry strong pricing power.

 

 

BEARS

  • Product recalls in the consumer business could dent J&J's strong brand name in a segment where brand recognition is important in maintaining market share.

  • Potential legal action regarding product recalls for hip and knee replacements along with several consumer products could not only hurt the company's reputation and cost billions of dollars, but also create a major distraction for management.

  • Several of J&J's key drugs are facing increasing competition, which could slow the growth rate of the drug division.

 

 

Lees ook deze aandelenanalyses van sectorgenoten

Novartis

Pfizer

Roche

UCB
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Effecten genoemd in dit artikel

Naam effectPrijsChange (%)Morningstar Rating
Johnson & Johnson130,96 USD-0,24
Novartis AG ADR89,51 USD-0,39
Pfizer Inc36,55 USD-0,14
Roche Holding AG291,60 CHF-1,29
UCB SA72,30 EUR-0,96

Over de auteur

Damien Conover, CFA  Damien Conover, CFA, is an associate director for Morningstar.

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