EUR 850.00 For Business Accounts Only

Morningstar | JNJ’s Diverse Operations Should Drive Steady Long-Term Sales Growth

Johnson & Johnson stands alone as a leader across the major healthcare industries. The company maintains a diverse revenue base, a developing research pipeline, and exceptional cash flow generation that together create a wide economic moat.J&J holds a leadership role in diverse healthcare segments, including medical devices, over-the-counter products, and several pharmaceutical markets. Contributing close to 50% of total revenue, the pharmaceutical division boasts several industry-leading drugs, including immunology drug Remicade and psoriasis drug Stelara. The medical device group brings in almost one third of sales, with the company holding controlling positions in many areas, including orthopedics and Ethicon Endo-Surgery's surgical devices. The consumer division largely rounds out the remaining business lines, and despite manufacturing issues over the past several years, the group still holds many brands with strong pricing power. Research and development efforts are resulting in next-generation products. The pharmaceutical group has recently launched several new blockbusters. However, relative to the company's size, J&J needs to increase the number of meaningful drugs in late-stage development to support long-term growth. The company has also created new medical devices, including innovative contact lenses and minimally invasive surgical tools. These multiple businesses generate substantial cash flow. J&J's healthy free cash flow (operating cash flow less capital expenditures) is over 20% of sales. Strong cash generation has enabled the firm to increase its dividend for over the past half century, and we expect this to continue. It also allows J&J to take advantage of acquisition opportunities that will augment growth. Diverse operating segments coupled with expected new products insulate the company more from patent losses relative to other Big Pharma firms. Further, in contrast to most of its peers, J&J faces the majority of its near-term patent losses on hard-to-make complex drugs, which should likely slow generic competition.