Looking For A Top Tier Pharma?
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Johnson & Johnson (NYSE: JNJ), a giant, diversified health care company, has an enviable record. It has grown its after tax profits 29 consecutive years, and its dividend for 50 consecutive years. That is a long-term record of excellence that few, if any, can match. The company has run into some headwinds of late, some self-directed, of others, it is the victim.
Revenues were nearly identical with last year, at $16.48 billion versus last year's second quarter revenue of $16.6 billion. Other growth within the company's broad product line has fully compensated now for the loss of much of Johnson & Johnson's over the counter medicine due to manufacturing flaws at the McNeil Labs subsidiary's manufacturing sites. By the time products like Tylenol and Benadryl are back on retailer's shelves, and no date has been forthcoming as yet, the entire recall, shut down, government consent agreement, and marketing upon reintroduction takes place, the McNeil Labs issue will have cost Johnson & Johnson in the $2 billion to $4 billion in revenue, and far more than that in reputation.
Johnson & Johnson's pharmaceutical product portfolio is a mixed bag. The company appears close to wrapping up a multi billion dollar settlement with the Department of Justice over mispricing its anti-psychotic, Risperdal. The loss of patent protection for billion dollar drugs Levaquin and Concerta also depressed sales in the second quarter. But the development of newer drugs is picking up. New prostate cancer drug Zytiga is well on its way to being a billion dollar a year medication. A number of new drugs were submitted for approval, before both the FDA and its European counterpart in the second quarter.
What Johnson & Johnson cannot control is the collapse of the Euro, and on account of anticipated poor currency translations it has lowered its anticipated profits for 2012 to from $5 to $5.07 per share. Analysts had been expecting $5.14 per share, on average, before the announcement. It is likely, if the company can manage it within established accounting rules, that it will report at least $5.01 to beat last year’s, $5 per share profit level.
Johnson & Johnson rarely surprises, and its dividend yield of 3.6% is well above market average. It is a near certainty that the company will continue increasing the payout, now standing at $0.61 per quarter, annually. Johnson & Johnson is a top tier choice for a long term holding by conservative, income oriented observers. It is now trading near its 52 week high; that would not discourage me, for there is never a bad time to invest in a top tier company, and Johnson & Johnson surely is one of those. When its McNeil division gets back in shape in 2013 or 2014, there is even likely to be a substantial bump in revenues and earnings. That, and perhaps spin offs or sales of underperforming units, will make Johnson & Johnson an interesting company to watch in the quarters and years ahead.
Another domestic drug health care stock that might be considered as a core holding is Pfizer (NYSE: PFE). It does not report earnings until the end of July, and as with all pharmaceutical based companies, it is all about revenue right now. Pfizer sports a 3.7% yield, and I will look at it more carefully after its earnings are released.
The next largest health care company, at least by market capitalization, is Merck (NYSE: MRK). It also has not yet released second quarter earnings. Yet, I note Merck's stock price has advanced 17% since June 1, probably due to excellent Phase III test results for new osteoporosis drug odanacatib. If true, the market has overreacted to this good news. I will report more fully after earnings are released.
One stock that might be similarly suitable as Johnson & Johnson as a core holding in any conservative portfolio is 3M Company (NYSE: MMM). It too is a long term dividend champion, having raised its payout recently for the 54th consecutive year. And it also is diversified along business sectors and geographically. Few industries carry the margins of health care; so sure, 3M's margins do not match up well.
The company's results have been solid to terrific of late. Revenues in full year 2011 were up almost 12% from 2010, and first quarter 2012 revenues were up a little over two percent from the first quarter of 2010. Profits were up seven percent in the first quarter over the year ago quarter to $1.59 per share. Analysts have 3M earnings growing at an annual rate of about 10% over the next five years, and given management's renewed emphasis on innovation and invention, I believe that to be achievable. This slice of the recovering American economy is about as “safe” a dividend stock as there is, and perfectly suited for conservative, income seeking investors.
The largest of all industrial conglomerates, General Electric (NYSE: GE) reported earnings of $0.38 per share, and management reiterated its expectations of double digit earnings gains for this year versus 2011. It is noteworthy that GE was able to expand its earnings from last year's $0.34 second quarter despite the European economic tsunami. I will write more fully on General Electric soon.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend 3M Company, Johnson & Johnson, and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.