JnJ beats the street, better finally

Yesterday we saw results from our favoured healthcare stock in our US portfolios, Johnson & Johnson. What a history this company has. It was founded in 1886 and has been listed since 1944. It has boasted 29 consecutive years of adjusted earnings increases and 50 years of consecutive dividend increases. It now has a market cap of $227bn and boasts annual sales of $67bn.


As you will know from the previous coverage I've done on the stock, there are three divisions to this business. Consumer (21% of sales), Pharmaceutical (39% of sales) and Medical Devices & Diagnostics (40% of sales). For the quarter these sales equated to $17.5bn which was up 8.5% from the first quarter last year. This was helped by higher drug sales and the acquisition of Synthes (medical devices) which will be fully integrated into earnings after this quarter.


Regionally these sales come from all over the world. 46% from the US, 25% from Europe, 11% from the Western Hemisphere excluding the US (I'm assuming this is mostly Central and South America) and 18% from Asia-Pacific and Africa. And where is the growth coming from? The US grew sales 11.2%, Europe 6.8%, Western Hemisphere excluding the US 4% and Asia-Pacific and Africa 6.3%. The Synthes acquisition probably skewed sales slightly in the US. This is a good mix and well balanced growth across the regions.


Profits of $3.5bn for the quarter translated to $1.22 a share. There were some once off charges for litigation and transaction costs. Without these the company made $1.44. Estimates for the full year come in at around $5.40. The stock trades at $83.45 or 15 times this year's earnings. Interestingly the stock has done very well lately, up over 19% this year so far. This is because, as we can see, sales are growing fast enough to justify a higher rating. There is another reason though. The whole sector has done well because defensive healthcare stocks are seen as more attractive in these uncertain times. Times are always uncertain but investors see these times as more uncertain than others. I disagree but I am not complaining. Stocks with more certain growth rates should always afford a better rating.


Overall I am very pleased with the numbers. It's great to see a strong comeback from their pharma division following a run of call backs due to bad quality. This division grew sales 14.7%. I have said this before but I really like the mix of sales. Many analysts feel that the pharma division on its own would afford a much higher rating but the diversification for me is a bonus. I like both consumer goods and medical devices as a theme.


We continue to add to the stock as the market leader in a sector which is benefiting from a well deserved rerating. And it is certainly not too late, the long term future looks strong as developing nations become richer and become more significant in their sales mix.