Good results, a beat from JnJ

They call it the bluest of blue chips. Johnson and Johnson, the $195bn producer of medical devices and diagnostics, pharmaceuticals and consumer health products released third quarter numbers on Tuesday. The company has been busy this year with an acquisition of medical device maker Synthes and a lot of research and development spend hence third quarter profits dropping 7.3% from this time last year.


Sales came in at $17.1bn which was an increase of 6.5%. Interestingly and again confirming the trend we saw yesterday with Coke, domestic sales (US) grew 13.4% while international sales only grew 1.4%. The medical device division (42% of sales) has been slow due to austerity measures in Europe. That makes sense, less government spend on hospitals. Consumer products have also been slow (22% of sales) but starting to pick up while pharma has grown nicely, up 11.3% (37% of sales).


Earnings per share came in at $1.05 which was above expectations. Analysts expect $5.09 for the year. The stock trades at $71 and a 2012 forward of 14. I would say this is fair for the kind of growth this company offers and the sector they operate in. Earnings for 2013, as per the analyst consensus, look to come in around $5.50.


The company is not without its risks and over the last few years it has been littered with product recalls, litigation costs and manufacturing issues. These seem to have stabilised over the quarter which the company has worked very hard to mitigate. There are also risks of patent expirations which need to be covered by new product releases from the company.


The company has some promising looking new products in the pharma market and a turn in Europe will surely help the lagging medical device division. The acquisition of Synthes I feel was well timed and gears them up for the turnaround we are expecting.


I like the theme. Healthcare is paramount in anyone's life and as the world gets wealthier JNJ products will grow in demand. Their consumer products are defensive in nature and won't blow the lights out but should show steady growth. I'm sure you all consume these products daily. Their medical devices division should turn with Europe while the US looks strong and should bring strong growth. The pharma division relies on their product pipeline which seems to be looking very positive. JNJ are the biggest in this field, have a fantastic history and operate in a sector that is bound to grow. We are using JNJ as our chosen entry into the global health care division.