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Johnson and Johnson needs no introduction. From commercialising first aid kits in 1888 to the $320bn market cap business it is today, the story is extraordinary. Now compromising three core divisions, consumer, medical devices and pharma, the business had annual sales of $72bn last year.
On Tuesday the company released first quarter numbers for 2017. Sales increased by 1.6% to $18.8bn, $9.4bn of that was in the US, $3.9bn in Europe, $3.1bn in Asia and Africa and $1.4bn in the Western Hemisphere excluding the US. This is a pretty decent sales mix. I always get encouraged when US companies still have big growth opportunities internationally. For a company the size of JNJ and the brand strength that they possess, the world is their oyster.
Adjusted earnings per share were up 5.8% to $1.83. Expectations from the company are for $7.00-$7.15 for the full year. Trading at $121 a share, the company trades on 17 times forward earnings which is pretty much in line with market. There is no doubt this is a quality company and quality attracts a premium.
To get a better understanding of their sales mix, take a look at the below image from the results presentation.
Pharma is still the crowned jewel but medical devices had a really good quarter.The medical devices sector is full of innovation and JNJ have the war chest to handpick great bolt on acquisitions. Speaking of which the $30bn Actelion deal has reached agreement and the impact on earnings has already been included. Remember they went after this Swiss business for its leading, differentiated in-market medicines for pulmonary arterial hypertension which already has 65000 patients on board.
The sector certainly comes with regulatory risks. But I think that justifies an investment in JNJ. The business is so big and so well diversified you are protected from certain products facing regulatory scrutiny. The more I follow the healthcare sector the more I realise that although it is a sector you have to be invested in, it is better to go with big conservative businesses. JNJ is the biggest and the most diversified.
Johnson & Johnson remains a core holding in the Vestact portfolio and we are still very happy to be adding at these levels. Scope for global growth is huge and they certainly have the resources to do so successfully.