Johnson & Johnson is one of the leading healthcare companies in the world, with over one billion people using its products daily.
The company has a well-diversified global footprint with the US accounting for 50% of the company’s revenues, and international markets constituting the remaining 50%. Johnson & Johnson is organized into three business segments – Pharmaceutical accounting for 42% of 2019 sales, (immunology, cardiovascular & metabolic disease, infectious diseases & vaccines, neuroscience, oncology), Medical Devices (26% – surgery, orthopedics, cardiovascular disease & specialty) and Consumer (14% – baby and beauty, health and healing products). Some of its top-selling and well-known brands include Neutrogena, Aveeno, Listerine, Tylenol, Motrin, and Zyrtec. Johnson & Johnson has 26 products with over $1 billion in annual sales and generates nearly 70% of its revenue from leading products.
Being in business for more than 130 years, Johnson & Johnson has built a vast distribution network, product portfolio, and a huge customer base. It manufactures and owns a large portfolio of healthcare and wellness products.Investment Data
- Opportunity Score: 65
- Ticker: NYSE:JNJ
- Sector: Healthcare
- Industry: Drug Manufacturers - General
- Market Cap: 392.76B
- P/E: 26.23
- Dividend Yield: 2.71%
- Payout Ratio (Earnings): 71.00%
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 8/10
Revenue Growth & Market Exposure
JNJ is a popular household name offering the world’s largest range of consumer healthcare products and a comprehensive portfolio of surgical technology and specialty solutions. It is a global leader in seven consumer categories and owns a strong portfolio of iconic brands. Johnson & Johnson is one of the most reputed healthcare organizations in the world and has developed a deep understanding of its customers’ needs with more than a century’s old experience. The company has become synonymous with health and baby care products. Consumers are reluctant to switch their healthcare brands unless absolutely necessary. This results in highly sticky customer relationships for the company. Extensive research has helped J&J to deliver innovative products and breakthrough healthcare solutions worldwide.
Johnson & Johnson continues to invest in R&D and invested 12.5% of sales in the latest quarter. The company is exploring immunomodulators to protect against Acute Respiratory Distress Syndrome in COVID-19. Its PER.C6 cell line offers a high yielding vaccine manufacturing platform that is scalable and has the ability to produce an ongoing supply of vaccines in large numbers. The company is also expanding its global manufacturing capacity, including the establishment of a new U.S. vaccine manufacturing capability and looking for options to expand in Europe and Asia as well. Johnson & Johnson is on track to start Phase 1 clinical trials in early September in the U.S. and Europe. The company is well-positioned to supply its products in adequate numbers and reasonable costs if a vaccine is approved.
Over the years, Johnson & Johnson has developed strong alliances with strategic partners and reputed medical companies which have helped it develop a number of well-known products across various medical fields such as immunology, neuroscience, oncology, pulmonary hypertension, and consumer segment.
Johnson & Johnson continues to generate ~25% of its sales from products launched in the last five years. In consumer, Tylenol remains its most iconic and trusted brand and the company witnessed an increased demand for the same in recent times. The Medical Devices, however, witnessed weakness as consumers chose to defer elective procedures and hospital resources remained limited in the current situation. The consumer health and pharmaceutical business segments continued to perform well as communities began stocking up to ensure a ready inventory of healthcare products and medicines. Adult Tylenol, PEPCID, ZYRTEC, and Zarbee’s were the best-selling medicines. However, incremental COVID-19 demand primarily impacted IMBRUVICA, XARELTO, STELARA, the pulmonary hypertension portfolio, and HIV products.
Johnson & Johnson is a Dividend King with a long and solid track record of paying and increasing dividends. The company’s recent hike of 6.3% marked its 58th consecutive year of dividend increases. It has grown its dividends at a rate of more than 7% CAGR over the last decade and currently sports a dividend yield of 2.6%. Its payout ratio is also reasonable at 59%, and regular cash flow from lucrative products adds enough visibility to future payouts. JNJ has returned nearly 50% of its 10-year free cash flow to shareholders.
Johnson & Johnson has a strong balance sheet and solid liquidity ending the first quarter with cash and marketable securities worth $18 billion and generating $3 billion of free cash flow in the quarter. The company also has AAA credit rating which enables easy access to the capital markets if needed. JNJ’s capital allocation priorities remain unchanged. It will continue investing in its business focusing on innovation but has no plans to announce a new share repurchase program in the current situation. JNJ is also expecting previously planned divestitures to be deferred. It is estimating adjusted EPS guidance in the range of $7.65 to $8.05 for 2020.
As the most broadly based global company in the healthcare industry, Johnson & Johnson has established a resilient business model with extensive research, manufacturing, and commercial capabilities. The company occupies leading market share positions across the full spectrum of health in the pharmaceutical, consumer, and medical devices segments. Johnson & Johnson has demonstrated its financial strength with 36 consecutive years of earnings growth. Some of its products in consumer, pharmaceutical, and medical devices segments have achieved multi-bagger returns over the years. A few of these successful products are Remicade, Zytiga, Velcade, Prezista, Imbruvica, etc.
The healthcare industry is subject to stringent regulations that act as a huge entry barrier for new players. A trusted brand name, diversified businesses, extensive global distribution network, and a growing customer base are the company’s key competitive strengths. It takes a significant amount of time and investment to build a strong brand recall as Johnson & Johnson has established today.
Johnson & Johnson faces intense competition from leading consumer and pharmaceutical companies both locally and globally. Some of the leading industry names are Abbott Laboratories, Pfizer Inc., Roche Inc., Novartis, Merck & Co., Inc., AbbVie Inc, AstraZeneca, etc.
In addition, the company also faces immense competition from companies manufacturing biosimilar products and offering increased rebates and discounts on products. Johnson & Johnson’s constant efforts towards achieving continued growth of the current portfolio, developing near-term product pipeline, and investing for long-term growth make it a distinct player in the industry.
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|NYSE:JNJ||JNJ||Johnson & Johnson||Healthcare||Drug Manufacturers - General||0.65||149.18||392.76||26.23||26.23||5.69||0.0271||0.7100||4||4.04||0.0869||7||8||Consumable - Necessities||NO||YES||YES||YES||USA||1||2.71|
|NYSE:MRK||MRK||Merck & Co., Inc.||Healthcare||Drug Manufacturers - General||0.62||85.81||217.03||20.89||20.89||4.11||0.0284||0.5937||4||2.44||0.0661||5||7||Consumable - Necessities||NO||NO||NO||NO||USA||1||2.84|
|NYSE:PFE||PFE||Pfizer Inc.||Healthcare||Drug Manufacturers - General||0.61||36.63||203.55||14.56||14.56||2.52||0.0415||0.6032||4||1.52||0.1020||6||7||Consumable - Necessities||NO||NO||NO||NO||USA||1||4.15|
|NYSE:ABBV||ABBV||AbbVie Inc||Healthcare||Drug Manufacturers - General||0.51||90.11||159.03||19.82||19.82||4.55||0.0524||1.0374||4||4.72||0.0619||5||5||Consumable - Necessities||NO||NO||YES||NO||USA||1||5.24|
|NYSE:LLY||LLY||Lilly||Healthcare||Drug Manufacturers - General||0.46||154.17||147.46||25.08||25.08||6.15||0.0192||0.4813||4||2.96||0.0471||3||6||Consumable - Necessities||NO||NO||NO||NO||USA||1||1.92|
|NASDAQ:AMGN||AMGN||Amgen Inc.||Healthcare||Drug Manufacturers - General||0.56||247.72||145.09||20.24||20.24||12.24||0.0258||0.5229||4||6.40||0.1577||5||6||Consumable - Necessities||NO||NO||NO||NO||USA||1||2.58|
|NYSE:BMY||BMY||Bristol Myers Squibb Co.||Healthcare||Drug Manufacturers - General||0.41||59.27||133.59||0.00||0.00||-0.10||0.0304||1.0000||4||1.80||0.0603||5||3||Consumable - Necessities||NO||NO||NO||NO||USA||1||3.04|
|NASDAQ:GILD||GILD||Gilead Sciences Inc.||Healthcare||Drug Manufacturers - General||0.35||65.05||81.55||0.00||0.00||-0.24||0.0418||1.0000||4||2.72||0.1523||3||4||Consumable - Necessities||NO||NO||NO||NO||USA||1||4.18|
|NYSE:PRGO||PRGO||Perrigo Company plc||Healthcare||Drug Manufacturers - Specialty & Generic||0.80||47.07||6.42||26.90||26.90||1.75||0.0191||0.5143||4||0.90||0.1415||9||7||Consumable - Necessities||YES||YES||NO||NO||USA||1||1.91|
The fundamentals of Johnson & Johnson’s business are strong. It is at the forefront to develop a potential vaccine for coronavirus cure. A strong portfolio of products and commercial capabilities has enabled the company to deliver global growth.
The company has successfully maintained its global supply chain network and critical inventory at major distribution centers and does not foresee pharmaceutical or medical devices supply interruptions related to COVID-19. It is also experiencing increased consumer-driven demand at this time. Johnson & Johnson is in a good position to benefit from growing consumerism, innovations in the healthcare industry, and aging of the global population in the long run.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.