Key Takeaways:
Current Price: $133 Price Target: $150
Position size: 2.52% 1-Year Performance: -2.4%
J&J reported sales and earnings ahead of expectations, thanks to better pharma drug sales of +6.4% organic. The Medical Devices segment saw good growth as well (+5.3% organic), while Consumer was the lowest reported (+1.3% organic) due to tough comps y/y and competitive pressure outside the US. On the positive side, the beauty and OTC businesses continue to gain market share in the US. JNJ raised its 2019 sales and EPS guidance after today’s results: organic sales now expected to be +4.5%-5% (from +3.2%-3.7%) and EPS 1% higher. China is still experiencing healthy growth (15% overall): 19% from Medical Devices, 14% in Pharma, 5% in Consumer. Tariffs had no impact on the business.
The company gave a preliminary 2020 outlook: sales growth to reaccelerate thanks to above market growth in Pharma and consistent Medical Devices growth of 3-4%. EPS growth will be somewhat limited by investment in R&D, especially in Medical Devices.
During the call, the management team answered some questions on recent litigation matters. They see the talc litigation as a big business for plaintiffs’ attorney, who spent $400M in TV advertising trying to add new class action suits. This has become a $36B industry, looking for negative headlines to drive more plaintiffs. The management team added that judgments in their favor rarely make the headlines. However, J&J has not seen any negative impacts from the lawsuits on their consumer segment, and will continue to defend its products. Regarding opioids, it seems the company is willing to settle (rather than go to court), as its sees this as the better solution for all stakeholders.
Thesis on JNJ reiterated:
- High quality company with consistent 20% ROE, attractive FCF yield,
- Investments in the pipeline and moderating patent expirations create a profile for accelerated revenue and earnings growth
- Growth opportunity: Medical Devices and Consumer offer sustainable growth and potential for expansion internationally
- Strong balance sheet that offers opportunities for M&A.
[tag JNJ]
$JNJ.US
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109