Johnson & Johnson Continues to Maintain Its Leadership Position in the Healthcare Industry

by Julie Young
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Johnson & Johnson is set to report second quarter earnings on July 16. Analysts’ consensus earnings per share (EPS) outlook is positive with an expected EPS of $1.39, $0.09 above 2Q12.

In the second quarter the company held its annual shareholder meeting and also reported on a business review of its Medical Devices and Diagnostics division. Both events reiterated the positive outlook for the company outlined in its 1Q13 earnings report.

First quarter top line revenue grew 8.5% year-over-year, with positive revenue growth occurring across all three business segments.

Medical Devices and Diagnostics accounted for 40% of the firm’s revenue. Revenue for the division grew 10.15% from the year ago period. The company’s acquisition of Synthes contributed to the segments growth specifically in Orthopedics which grew worldwide revenue 60% from 1Q12.

Pharmaceutical comprised 39% of the company’s revenue in 1Q13. Overall segment growth improved 10.4% from 1Q12. Immunology, one of the segment’s strongest business groups, grew 16.3%.

The Consumer business segment comprised the final piece of the company’s revenue at 21%. In 1Q13 the company grew Consumer sales revenue 2.2%. Over the counter drugs continued to fuel market growth in the segment, growing sales revenue 7% from 1Q12.

In 2013 guidance, the company increased its 2013 revenue, earnings and EPS outlook for the year due to the strong growth. Operational sales growth estimates were revised up to 5.7%-6.7%. Earnings per share guidance was also revised up to $5.33-$5.43, or an increase of 4.5%-6.5%.

At the annual shareholder meeting Alex Gorsky, Chairman and CEO, reiterated the company’s strong growth and highlighted its market position in the Healthcare industry.

In the Pharmaceuticals division, Gorsky noted the growth of REMICADE, ZYTIGA, Invega, Sustenna and INCIVO which led sales for the segment. In Pharmacuetical JNJ is also leading the industry in product approvals. According to Gorsky, a remarkable 10 new molecular entity approvals were obtained between 2009 and 2012. Additionally, InnoThink Center also recently ranked Johnson & Johnson the most productive pharmaceutical company, a testament to the company’s innovation.

In annual shareholder comments Gorsky also noted the company’s strong market position overall stating that approximately 70% of the company’s sales came from products that had a number one or number two market share position

In May, Johnson & Johnson’s Business Review provided additional detail on the company’s momentum, specifically highlighting the growth occurring in the Medical Devices and Diagnostics division. Medical Devices and Diagnostics is expected to grow at a rate of 3-6% from 2011-2016, according to Gary Pruden, Worldwide Chairman of Global Surgery. This growth is specifically led by the integration of Synthes which is currently a key focus for the company and makes JNJ the worldwide leader in Orthopedics.

Overall, the company appears to be advancing at a strong pace in 2013. Its upward revisions to its annual growth estimates provide further evidence of the company’s strength. Trading at $89.24 with a price target1 of $98.22 it continues to be a leading investment in the Healthcare industry. Outpacing the Dow 30 on a six-month and one-year basis by 10.12% and 12.21%, respectively, it is a stable long-term investment for any investor seeking Healthcare industry exposure.

1 The price target is derived from Bodie, Kane and Marcus’ intrinsic value formula. The intrinsic value formula discounts the stock’s projected one-year future cash flow by the risk-free rate on the one-year Treasury note and includes adjustments made for specific market assumptions including the stock’s beta and market risk premium.

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