Company Overview
Johnson and Johnson (NYSE JNJ) is the world’s premire consumer healthcare company. JNJ is actually a holding company, and is made up of over 250 operating companies who do business in 60 countries.
JNJ was incorporated in the State of New Jersey, USA, in 1887. In 1944, their shares were listed on the NYSE. The company is a world leader, and 70% of it’s sales come from products that hold the #1 or #2 positions in their categories. The company has 47 years of dividend increases. It has also generated a return of 5.6% in the last decade, vs. the SP -1.4%.
* On the JNJ website they claim 76 years of sales increases and 25 years of earnings increases. However, in their 2009 annual report sales were down, as were eps. Maybe they haven’t got around to changing that yet*
The company employs 114,000 people worldwide, organized in a decentralized management structure. The operating companies are organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. Some of the most common and recognizable household names are owned by JNJ, including Nuetrogena, Aveeno, Clean and Clear, Band-aid, Splenda Sweetener, Tylenol, etc., along with many prescription drugs like Concerta.
Financial Analysis
Dividends
| Dividend Growth | CAGR | | |
| 10 year | 13.30% | Payout Ratios | 10 yr Avg. |
| 5 year | 10.81% | EPS | 40% |
| 1 year | 7.22% | Cash | 37.63% |
Dividend growth is slowing, but as dividends get higher, it is much harder to continue large increases. For example, a 10% increase in a 0.10 dividend is only 0.01, while a 10% increase in a 1.50 dividend is 0.15. However, the dividend is well covered, and a 13% 10 year annual growth rate is very respectable.
At the current price of 61.29 JNJ yields 3.15%
Income Statement
| Revenue Growth | CAGR | EPS Growth | CAGR |
| 10 year | 8.63% | 10 year | 12.16% |
| 5 year | 5.21% | 5 year | 7.05% |
| 1 year | -2.90% | 1 year | -3.72% |
| Margins | 10 yr Avg. |
| Gross | 70.90% |
| Net | 18.21% |
Share buybacks have averaged 2.41% over 10 years.
As I noted above, though they claim 76 years of sales increases and 25 years of earnings increases, I found this was not the case, and attribute this to not updating this part of the website.
Balance Sheet
| Balance Sheet Ratios | 10 yr Avg. |
| Current Ratio | 1.85 |
| Lg T Debt / Equity | 0.11 |
| Tot Debt / Equity | 0.18 |
| Debt / Total Capital | 0.15 |
| Cash Return / Tot Capital | 23.96% |
As expected from a company of this caliber, very low debt. And a good cash return on total capital employed.
Cash Flow
| Free Cash Flow | CAGR | FCF Per Share | CAGR |
| 10 year | 11.66% | 10 year | 12.86% |
| 5 year | 11.57% | 5 year | 13.65% |
| 1year | 19.32% | 1 year | 21.31% |
Cash growth is strong, stronger than earnings and sales growth. Just by doing a quick once over of the numbers, they have done a great job of increasing cash from operating activities and keeping capital expenditures down.
Stock Price
| Current Price | 61.29 |
| P/E | 13.93 |
| Est Forward P/E | 13.01 |
| Div Yield | 3.15% |
| Int. Value | 69.68 |
| 2011 Int. Value | 75.81 |
| Max Buy Price | 64.33 |
| | 10 yr Avg. | 5 yr Avg. |
| High P/E | 29.86 | 17.85 |
| Low P/E | 20.12 | 14.28 |
| High Yield | 2.35% | 3.01% |
| Low Yield | 1.75% | 2.34% |
Qualitative Analysis and Conclusion
JNJ has a reputation as one of the most successful companies of all time, and for good reason. I don’t think I need to explain why this company is a major world player, and will be for probably some time. One of my favorite things about JNJ is that they have managed to get so large without any of the anti-corporate backlash other companies such as Wal-mart have had to deal with.
Their brands are iconic, and it is doubtful they will be going anywhere anytime soon. Yes, JNJ faces risk factors that all businesses face. But the company has so many revenue streams, from so many areas, I find it hard to believe it’s going to go belly-up any time soon. Hell, even the great Warren Buffett has not just a huge stake in JNJ, he recently increased his holdings.
There has recently been some issues with quality control at a few of it’s Pennslyvania plants, and they made huge recalls of Children’s Motrin and Tylenol. But JNJ has shown over the past century it can whether the storm, and it has the financials to back that up.
I feel JNJ is a great buy right now. The stock has never returned to it’s 2000 high of 105, but most companies have been caught in a rut for the past decade. The company has all the attributes you look for in a stand-out company, and I feel once the economy picks up again there will be some capital appreciation.
In addition, they pay a great dividend, with a yield above my buy point of 3% and above the 5 year average high yield of 3.01%. It is well covered by cash flow, with plenty of room to grow. P/E is below 15, and it’s trading below my max buy price. I look forward to adding to my position.
$ Full Disclosure: Long on JNJ
No comments:
Post a Comment