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Johnson &
Johnson is scheduled to report fourth quarter 2008 results
before the market opens on Tuesday, January 20. Based on our
analysis, we are expecting JNJ to report better than expected
results that exceed Wall Street’s expectations.
Analyst
Expectations
We are
forecasting revenues of $15.82 billion and EPS of $.96. This
would represent a 1% decline in revenues from last year’s $15.96
billion in the same period. The current analyst consensus calls
for revenues of $15.97 billion and $.92 EPS.
Johnson &
Johnson has traditionally enjoyed a reputation as a defensive
stock and a company you want to own in almost any economic
environment. The company produces a tremendous amount of cash
from its diversified product offerings. It has an incredible
track record of outperforming Wall Street’s expectations. And
maybe most importantly, it manages the company to create
long-term value for its shareholders.
We expect
that investors will benefit from JNJ’s strong cash position
($14.8 billion) in 2009. The company still has $4.9 billion
remaining in their share repurchase plan. In addition, the
current dividend yield is over 3% and could be expected to
increase.
As with
every pharmaceutical firm, the success of their product pipeline
is essential to the future success of the company. Many analysts
believe that JNJ’s pipeline is the strongest it has been in the
last five years. New products are expected to contribute heavily
to the company’s sales growth over the next few years.
Share
Performance
Johnson &
Johnson's shares are down 19% from their 52-week of $72.76 set
in September 2008. In 2008, their shares declined only 10%
making them one of the Dow’s best performers.
Valuation
Shares are
now trading at 12.6x consensus 2009 EPS estimates. While little
growth is expected in 2009, moving into 2010 and beyond the
growth grate should re-accelerate once again. Therefore, we
would expect JNJ’s shares to remain relatively range bound this
year, but this solid company with its attractive dividend would
be a good pick up if shares fall below $50.
Recommendation:
Hold with a $60 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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