Key Takeaways:
Current Price: $146 Price Target: $175 (NEW)
Position size: 2.54% 1-Year Performance: +16%
J&J reported 4Q19 organic sales growth of 2.6% and adjusted EPS decline of -3%. For the year, organic sales grew 2.8% and EPS +8.8%. By segment, Consumer grew 2.1% in the quarter thanks to good over-the-counter, beauty and wound care performance but the baby care saw a 9.3% decline (Baby center divestiture and competitive pressure). Pharma grew 4.4% as its oncology business saw good overall market and share growth. Immunology, infectious diseases and neuroscience also performed well. Sales decline for its cardiovascular and pulmonary Hypertension businesses due to biosimilar and generics competition.
Medical devices performance was flat due to a decline in its surgery business (sale of the ASP business), but ex the divestiture, the segment grew 2.7%, still somewhat underwhelming for a healthcare sub-sector that has performed in the mid-single digits in the past few years.
JNJ also provided 2020 revenue guidance of $85.4-$86.2bn (within consensus expectations of 5-6% growth), and EPS below ($8.95-$9.10 vs consensus $9.12). We think management is being conservative at this point.
On the litigation front, JNJ has a goal of settling in opioids cases, but continue to go to court with its talc cases. A recent ovarian cancer study showed no significant relationship between talc and ovarian cancer.
We are updating JNJ price target as we are rolling forward our model to 2020.
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