Johnson & Johnson (JNJ): Is This Healthcare Company a Strong Investment?

Page 1 of 2

The slowdown in stock market has also adversely affected leading healthcare companies’ stocks. But many still think investing in healthcare giants such as Johnson & Johnson (NYSE:JNJ) is the right move. Let’s take a closer look at this company and break down its main strong points, opportunities, and risks.

Johnson & Johnson (NYSE:JNJ)

J&J continues to grow

Johnson & Johnson has done well in the first quarter of 2013: The company’s revenues grew by more than 8.5%. In comparison, other leading healthcare companies such as Eli Lilly & Co. (NYSE:LLY) and The Procter & Gamble Company (NYSE:PG) haven’t done as well: Revenues of Eli Lilly remained flat in the first quarter of 2013; Procter & Gamble’s net sales increased by only 2% (year-over-year). On the other hand, Johnson & Johnson (NYSE:JNJ)’s operating margin declined by 15.5%. The sharp drop in profit margin is related to the one time beneficial adjustments that were recorded in the first quarter of 2012. After controlling for this one-time accounting provision, the company’s profitability declined by only 4.4%. Johnson & Johnson’s profit margin used to be much higher than that of Procter & Gamble and Eli Lilly in most of 2012. In the past couple of quarters, however, J&J’s profit margin slipped while other companies’ profit margin rose. In the chart below are the developments in adjusted profit margins of the above-mentioned companies (adjusted for one-time accounting expenses such as goodwill).

As seen, the profitability of Johnson & Johnson (NYSE:JNJ) is in the middle of the pack among these healthcare and consumer goods companies.

As indicated in the table below, among the three major business segments J&J operates, both the medical devices and pharmaceutical segments have sharply increased in the first quarter of 2013. The company’s consumer goods segment rose by only 3.3%.

For the consumer segment, the high competition and slow progress of the U.S economy is likely to impede this segment’s growth.

Despite the rise revenues across all three segments, the fluctuations in the currencies have adversely affected revenues. The high movement in the forex markets could keep pulling down the growth rate in revenues in the coming quarters.

What about future growth?

J&J is well diversified and reaches many business segments as presented in the table above. The consumer segment depends on the future progress of the global economy mainly the U.S, which accounts for nearly a third of Johnson & Johnson (NYSE:JNJ)’s revenues in this segment. If the U.S economy’s growth slows down; it could impede growth in consumer sales. Alas, this segment has the lowest profit margin and accounts for the lowest share of J&J’s total revenues.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!