JNJ – Not Just a Defensive Pick

December 7, 2008

Ticker: JNJ

Johnson & Johnson is the world's second largest and most broadly based manufacturer of health care products, with annual sales of $61.1 billion. It is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. Johnson & Johnson has more than 250 operating companies. The Company operates in three segments:

• Consumer,

  Pharmaceutical, and

  Medical Devices and Diagnostics.

The company holds a significant share of the consumer and pharmaceutical markets, and is the world's largest developer and manufacturer of medical treatment and diagnostic devices. (More from Reuters)

Citi maintains a 'Buy' rating for JNJ

Citi has maintained a 'Buy' rating on JNJ with a Price target of $66. Citi analyst recently said that, "Yesterday's $1.1B agreement to buy MNT and last week's $438MM agreement for OMRI demonstrates JNJ's increased interest in exploiting depressed valuations to acquire companies with strong long-term growth platforms...Flush with cash, JNJ now looks to be taking advantage of depressed valuations and we would not be surprised to see more activity. Our potential list includes Nuvasive, Nobel Biocare, Straumann Holdings, Basilea, and Medicis...JNJ plans to retain the MNT sales force. As a result, the acquisition will be $0.03-0.05 dilutive to EPS in 2009. However, the acquisition should be accretive afterwards. We are leave our estimates unchanged until the deal closes in Q1:09."

Found on Wikinvest.com - Reasons to buy

Here's a couple of interesting reasons found on Wikinvest – that make a lot of sense to me –The company's broad-spectrum, diverse business mix of consumer health care, pharmaceuticals, and medical devices decreases the risk of investment.

Johnson & Johnson owns highly successful brands such as Tylenol, Band-Aid, and Neutrogena. The acquisition of Pfizer Consumer Healthcare in 2006 and addition of brands such as Listerine, Lubriderm, Visine, and Neosporin further solidifies Johnson & Johnson lead in consumer health care

Warren Buffet has it

I found on Gurufocus.com that the Oracle of Omaha currently owns about 61,754,448 (that's 61 million) shares of JNJ – amounting to over 6% of his total assets managed- the last purchase being at $67.69. Some of the other popular names that own this stocks include Kenneth Fisher, Richard Perry, Prem Watsa, Richard Snow, Tom Gayner, Chris Davis, Tweedy Browne and Richard Aster Jr.

Earnings

		Actual (USD)	Estimates (USD)	Surprise
Q3 2008		1.17	1.11	0.06(5.12%)
Q2 2008		1.18	1.12	0.06(4.98%)
Q1 2008		1.26	1.20	0.06(4.65%)

The company has exceeded analysts' earnings expectations in 27 out of the past 30 quarters. Here's a link for JNJ's earnings history.

View the full JNJ chart at Wikinvest

Fundamentals

JNJ reported 3rd quarter 2008 Cash flow per share of $1.73 on 10/14/08 – the estimates for FY 2008 are at $5.54.

JNJ's P/E Ratio @ 13.19 is comparable to other companies in the Major Drugs industry. The PEG value of 1.5547 suggests that JNJ is relatively inexpensive at the current trading price.

JNJ's margins are very robust – with the gross margin at 70.75%. With an operating margin of 24.40% - JNJ controls its costs and expenses better than 75% of its peers. The Return on Equity for JNJ at 28.24% indicates that it reinvests its earnings more efficiently than 90% of its competitors. Also, JNJ's EPS Growth Rate is greater than 75% of its peers in the Major Drugs industry