JnJ 2Q numbers

JNJ released numbers for the second quarter yesterday, before the market opened. This is one of the oldest and most recognisable business in the healthcare space across the planet, if not the owner of that title. A bandaid is synonymous with the word plaster. It is a really big business, consisting of three specialist divisions, one being their medical devices (Synthes and DePuy), the other being the well known consumer division (if you have had a baby, you know this one well) and then lastly the pharma business.

As standalone business these three could compete against the best across the globe in size and scale, as it stands now the collective market valuation for JNJ is a whopping 277 billion Dollars. The business trades at a discount to some of their peers, at 17 times historical earnings, it is less than Pfizer (24 times) and Roche (25 times), it does trade at a slight premium to Merck however, which trades at 15 times historical earnings. Only Novartis is a bigger business in the US, in the same space, the ADR is worth 283 billion Dollars. Yowsers, that is huge! Novartis for the record trades on a 24 multiple in their home market, the Swiss market.

Quick numbers now, JNJ recorded revenues of 17.8 billion Dollars for the quarter, or 195 million Dollars of sales a day across the globe. To put that into perspective, the biggest company by revenue globally, Walmart, recorded daily sales of nearly 1.33 billion Dollars daily. Pretty mind boggling, right? That is equal to a whole year worth of economic output of the Seychelles, in fairness there are only 92 thousand permanent residents in the beautiful tropical island. As a result of currency swings, this revenue number was 8.8 percent lower than the corresponding quarter in 2014, operational growth was a muted 0.5 percent. Earnings were 4.5 billion Dollars for the quarter (or nearly 50 million Dollars a day), 1.61 Dollars of earnings per diluted share.

Guidance for the full year was in the range of 6.10 to 6.20 Dollars per share, meaning that at the closing price of 99.76, the stock trades on forward guidance of 16.2 times. The yield is almost spot on 3 percent, pre dividend tax of course. The government always need their 15 percent share in dividends tax for doing such a wonderful job and thereby further encouraging companies to be more profitable. Or do they not take enough along the way? Separate argument altogether.

Whilst they have encountered competition in their old therapies, they certainly are making headway in their cancer therapies, which would of course be the next big hurdle for humanity. The question remains, will JNJ remain a compelling investment? The short answer is that whilst share price performance has been lacklustre at best, they continue to increase their dividend and there is always a chance of M&A, as well as a break up of the group into separate divisions, something that should unlock value. We continue to maintain our hold on the securities of this fine business, accumulating on weakness.