Tuesday, 13 October 2015

Johnson & Johnson - dull Q3s...but it is more of a buy than a sell

Ah...Johnson & Johnson.  As I noted previously (link here) as it is such a stalwart position of many longer-term investors the trick is to wait for weakness in the share:

'The valuation - with the corporate progression - is slowly compressing and prospectively is a little over x11 EV/ebit and x15 P/E: nothing that will worry longer-term holders.  For myself - and my pension fund - how I wish we could crash through the US$95 level like last Autumn.  That's a good bad day level for me to buy shares in the company in a world that remains macro challenging'.  

And look where they are today...

...(well to be fair the share has been below US$95 for a couple of months now). 

Looking at the numbers the most immediate observation is the influence of the US dollar on the numbers as shown by the difference between the 'total' and 'ops' changes

Divisionally both consumer and medical devices led the way with positive performances but the former - still amazingly JNJ's smallest division - was the real star.  

Medical devices - which was discussed at length during the conference call - suffered from some pricing power issues but overall just about convinced me that an innovation-led approach which included a big robotics push...

...would lead to success over time. 

As for pharmaceuticals hep C product declines due to peer launches pulled sales down although the oncology division was positive. 

Putting it all together Johnson & Johnson are moving forward...but shorter-term in a slightly dull manner.  Therefore no surprise that given we have noted their strong balance sheet before (net cash on the balance sheet) that a US$10bn (just under 4% of market cap) buyback was announced today.  Assuming that it was split between a couple of years then the proportional return to shareholders was around 5% per annum which is not exactly bad.  It will not apparently inhibit any M&A they may be planning although judging by the tone of the conference call this is not happening immediately. 

So not the most inspiring set of numbers but longer-term investors will remain calm.  So that aforementioned US$95 level or below is about the right level for first time buyers...and funnily enough as I have been writing this piece the shares have turned positive on the day and now trade at c. US$96.  

Says everything. 

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