Opinions
Alexander MacDonald Portfolio manager
Johnson & Johnson
JNJ-N
Unspecified
Aug 14, 2023
Stock price when the opinion was issued
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The consumer product monster has increased debt lately, but analysts feel comfortable with the low debt to earnings ratio. This is allowing the company to continue growing cash reserves. It trades at 24x earnings and supports a 20% ROE. We recommend setting a stop-loss at $133 looking to achieve $174 -- upside potential of 19%. Yield 3.3%
(Analysts’ price target is $174.28)Johnson & Johnson is a holding company, which engages in the research and development, manufacture and sale of products in the health care field. It operates through the following segments: Consumer Health, Pharmaceutical, and Medical Devices. The Consumer Health segment includes products used in the baby care, oral care, beauty, over-the-counter pharmaceutical, women's health, and wound care markets. The Pharmaceutical segment focuses on therapeutic areas, such as immunology, infectious diseases, neuroscience, oncology, pulmonary hypertension, and cardiovascular & metabolic diseases. Social media mentions are up 250% in the past 24h.
Is a hodge-podge of consumer products, some medical business and an also-ran in businesses like hips and knees. This has always traded at a premium for being a well-run consumer package company that money managers can't get fired for owning. It's so big that it needs to be broken up.
After spinoff, now just pharma and medical technologies/devices. One of 2 AAA-rated US companies (the other is MSFT). Pristine balance sheet forever. Divvy increases for 62 consecutive years, all from free cashflow. Crazy-cheap valuation of 14-15x PE, partly due to ongoing talc litigation. Yield is 3.34%.
Recent press release was like none other. Company stated talc litigation based on fake science; if the other side won't settle, JNJ will litigate each and every case separately. He suspects this is a ploy to force a settlement. Expects it to be over by year's end.
It reports Tuesday when we should get a legal update about those suing JNJ for cancer allegedly being in their talcum powder. It's been stuck in a range forever, though not in a perpetual downturn like other pharma. This could turn around on any big news on any new drug.
This is a core holding. It is a pharmaceutical and medical devices company. There has been some mild concern about a bit of a patent cliff and asbestos claims from a baby powder product. However it is a defensive company with a solid balance sheet and Triple A rating. There is a spinoff coming which will be available to shareholders. When asked about Lilly, he prefers Johnson and Johnson.