By RESHMA KAPADIA – December 10, 2016
Many investors hang on to Johnson & Johnson shares for the same reason they stock their cabinets with the company’s Band-Aids and baby shampoo: comfort and safety. Johnson & Johnson offers a diverse business mix, including pharmaceuticals, medical devices, and consumer products; a $40 billion cash kitty; and steady, mid-single-digit earnings growth. Add a dividend yield near 3%, and the stock soothes many a portfolio, especially when markets are roiled.
J&J’s shares (ticker: JNJ) are up 8% this year, to a recent $111, but down 5% since Donald J. Trump’s election. Trump has vowed to reduce drug prices, but J&J is less susceptible to changes in pricing than its peers. Moreover, the New Brunswick, N.J.–based company could prosper as a result of Trump’s plans to lower corporate taxes.
Internally, J&J is making substantial improvements in its consumer and medical-device businesses. In addition, reduced concern about competition for Remicade, its blockbuster rheumatoid arthritis treatment, could help bolster the stock. Some analysts see J&J shares rallying to the mid-$130s in the next year, delivering a total return around 20%.
“J&J is misunderstood as a defensive stock,” says Micky Jagirdar, an analyst for Ariel Global fund, which owns shares of the drugmaker. “While it grows at only a single-digit pace, its diverse businesses make that growth more sustainable for a longer time.”
Johnson & Johnson is expected to earn $18.6 billion this year, or $6.71 a share, an increase of 8% over last year, on a 3% jump in revenue, to $72.1 billion. Wall Street sees earnings per share rising 6% in 2017, to $7.13, on revenue of $75.5 billion.
Founded in 1886 as a surgical-dressing concern, J&J now generates 45% of its revenue and almost 60% of its operating profit from pharmaceuticals. Medical devices produced a bit more than a third of revenue and operating profit last year, while the company’s iconic consumer business contributed just under 20% of revenue and 9% of profit.
