Johnson & Johnson will Slide Sideways through 2012
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
What can we expect from a strong seasoned company like Johnson & Johnson (NYSE: JNJ) for the rest of 2012? The company has a lot of things going for it and at the same time faces numerous dilemmas that may take some time to solve. Profits are increasing but the brand name might be taking a hit. Presently the company is a very good dividend stock and will continue to perform this way. Is it a good stock to invest in right now for any other reason than the dividend?
Philosophically J&J wants to Grow
While we know competitors are contracting to some degree or another, J&J wants to expand. Alex Gorsky recently took the helm at the company as the new CEO and stated that he wants to: make that business even bigger, using some of the $14 billion in cash at his disposal to expand J&J's footprint in med-tech.” So while it expands competitors are moving in the opposite direction. Pfizer (NYSE: PFE)—the world’s top seller of health-care products in 2011 is going to reduce the New York-based drugmaker’s size and on April 23 the company announced it would sell its infant- nutrition business to Nestle SA for about $11.9 billion.
Abbot Laboratories (NYSE: ABT) said it would split the company into a drugmaker and diversified health-care business by year’s end. From an investor’s stand point this looks attractive in order to realize the most value from a more narrowly focused operation.
Can a New CEO make Things happen?
Alex Gorsky just took over the reigns to J&J very recently and if history plays the same tune, wh will be there for a long time. He is only the ninth top executive in J&J's 125-year history, meaning its CEOs have held sway for an average of almost 16 years each. A West Point graduate, he has been promoted from within and after a military carrier—joining the company in 1988 as a sales representative. He may want to grow, but he also faces some real challenges as he inherited a slew of legal measures against the company.
Legal Actions from Every Division
J&J got 40 percent of its revenue from medical devices, 37 percent from pharmaceuticals and 23 percent from over-the- counter products in 2011.Each of these are facing a slew of lawsuits.
- Medical Devices- the company faces more than 6,000 lawsuits from patients who received faulty artificial hips that were recalled in 2010.
- Pharmaceuticals- an Arkansas judge ruled on April 12 that J&J must pay $1.1 billion in fines, after a jury found the company misled doctors about the antipsychotic medication Risperdal. J&J said the fine is “excessive” and that it would appeal the ruling if its motion for a dismissal fails.
- Counter Products- quality issues led to the recall of hundreds of millions of packets of Tylenol, Motrin, Benadryl and other over-the-counter consumer products.
The problem with this is that consumer confidence is being broken. Not only does the company have to fix the problem, but get the products back on the shelf and this is not supposed to happen until 2013 at the earliest. Some analysts think it may take until 2014. The recall is going to cost billions of dollars of additional lost sales, further jeopardizing consumers' brand loyalty. Consumer over the counter sales fell 2.4% and could see future losses as the company hopes the new drugs in Pharma sales will help offset the slow down.
We are not expecting anything great to come of Johnson & Johnson in 2012. It may continue to move sideways in a trading zone but we are not looking for any large upside move until consumer products are put back on the shelves and we see how they are embraced by the general public again.
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