Medical Technology

Johnson & Johnson

The Company

Johnson & Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> operates in three segments: consumer products, medical devices, and professional products. The pharmaceuticals division accounts for about a third of the company's revenues but produces around 60% of the company's profits. With over 22 compounds slated to hit the market in the next two years and no major drugs going off patent until 1999, J&J is well positioned in the ethical drug segment. The company is the largest manufacturer of health care products in the world, with such strong brand names as Band-Aid and Tylenol.

J&J markets numerous medical devices, the most controversial of which is the Palmaz-Schatz stent, which has dominant market share in the stent market in the U.S. The release of strong competitive products from Guidant and Boston Scientific has many concluding that J&J's market dominance in this segment is set for decline. Valued at 24x forward earnings J&J is certainly not undervalued, but it is actually the most palatable stock in a group that is dominated by 52 week highs. It is important to remember that stents represent less than 4% of J&J's corporate revenues despite their high margins. With all of these companies at the high end of their valuations, this momentary lukewarm feeling toward J&J presents an opportunity to acquire a company that may not excel in the short term but will continue to perform for decades.

Latest Financials

Johnson & Johnson announced sales of $5.7 billion and net earnings of $909 million for the second quarter of 1997, increases of 5.9% and 14.9% respectively over 1996 second quarter results. Earnings per share for the second quarter were $0.68, up 13.3% from the same period in 1996. The impact of the stronger dollar relative to foreign currencies decreased second quarter sales by 3.2%. Net earnings before taxes were $1.29 billion, a 15.6% increase from the same period in 1996. Net earnings increased by 14.9% despite being unfavorably impacted by a higher effective tax rate.

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