It was not long ago that Johnson & Johnson (NYSE:JNJ) bought orthopedic manufacturer Synthes, and now the pharma giant is looking at more such acquisitions, especially for its cardiology devices business that has taken a beating over the past few years. JNJ is a big pharma company and operates in three important segments: consumer, pharmaceuticals, and diagnostics. It competes with Pfizer (NYSE:PFE), Merck (NYSE:MRK) and Abbott Labs (NYSE:ABT).
We maintain a $72.45 price estimate for JNJ, which is nearly 10% above the current market price, largely based on our long-term outlook for the company.
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According to our estimates, JNJ’s market share in Vision Care, Diabetes & Other Medical Devices will stagnate over our forecast period. This is largely due to discouraging results from its cardiovascular devices segment in the past five years. However, the newly appointed CEO Alex Gorsky is looking at acquisitions to reinvigorate the segment with products like heart valves.  The possible takeover targets are Edwards Lifesciences or St. Jude Medical.
Edwards Lifesciences holds half of the heart valves market, while St. Jude enjoys the highest operating margins in the industry. Some of JNJ’s products have performed miserably in terms of quality. Several over-the-counter products of the company were recalled because of foul odors and adulterated ingredients.
We expect these acquisitions will help JNJ gain market share in cardiology devices. Stents, catheters & other medical devices account for 18% of Trefis price estimate for JNJ stock, by our analysis.