Market Capitalization $326.9 Billion

Transcription

1 BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RATING SINCE 03/30/2012 TARGET PRICE $ BUSINESS DESCRIPTION Johnson & Johnson, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices. Sector: Health Care Sub-Industry: Pharmaceuticals Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years TARGET PRICE $ STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues Net Income EPS Rating History BUY RETURN ON EQUITY (%) Ind Avg S&P 500 Q Q Q P/E COMPARISON Volume in Millions COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History RECOMMENDATION We rate () a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income EPS ANALYSIS¹ ($) Ind Avg S&P 500 HIGHLIGHTS Compared to its closing price of one year ago, 's share price has jumped by 27.17%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year. Despite its growing revenue, the company underperformed as compared with the industry average of 11.2%. Since the same quarter one year prior, revenues slightly increased by 3.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. Q Q Q Q Q Q Q NA = not available NM = not meaningful Q Q Q Compustat fiscal year convention is used for all fundamental data items. The current debt-to-equity ratio, 0.36, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 2.54, which clearly demonstrates the ability to cover short-term cash needs. The gross profit margin for is currently very high, coming in at 76.04%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 21.62% is above that of the industry average. PAGE 1

2 PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -10% 60% UNFAVORABLE LLY 20% AZN BMY EBITDA Margin (TTM) PFE MRK FAVORABLE AGN 55% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $83.6 Billion and $326.9 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -10% 60% AGN UNFAVORABLE -3% GSK Earnings Yield (TTM) FAVORABLE NVO BMY PFE LLY MRK AZN SNY NVS Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -7.6% and 51%. Companies with NA or NM values do not appear. 5% INDUSTRY ANALYSIS US pharmaceutical companies are involved in the discovery, manufacturing, distribution, and research of generic and branded drugs. The industry accounts for 27.3% of the healthcare sector and is capital-intensive with exorbitant R&D costs. Most companies are mature and characterized by high margins and higher dividend pay-outs. Major players include Pfizer (PFE), Bristol-Myers Squibb (BMY), Abbott Laboratories (ABT), and Eli Lilly (LLY). The industry employs more than 400,000 in the US. The 50 largest companies control over 80% of the market. The industry faces unprecedented challenges from stringent environmental regulations and patent expirations on billion-dollar products. Industry experts believe that generic competition will wipe out more than $60 billion from US industry sales over the next five years as more than three dozen drugs lose patent protection. Merck lost a $3 billion patent protection for its osteoporosis drug Fosamax in 2008 while Eli Lilly lost an estimated 90% of Zyprexa sales. The FDA is rejecting more drugs on safety concerns and a lack of compelling evidence of definite advancement from existing drugs. The US government enacted the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) in 2003 to provide prescription drug benefits to the elderly and disabled. Medicare Part D, a component of MMA, which came into effect in 2006, altered the revenue model of pharma companies. Horizontal and vertical integration has created health maintenance organizations (HMOs) and pharmacy benefit management firms (PBMs). In order to cut costs and remain competitive, the US pharma majors have been outsourcing research to low-cost service providers in India and China. The promising era of personalized medicine has begun. Dozens of exciting new drugs for the treatment of dire diseases such as cancer, AIDS, Parkinson's, and Alzheimer's are either on the market or are very close to regulatory approval. The industry has shifted its focus from blockbuster drugs (chemistry-based drugs) to specialized products, geared towards specific disorders. Growth in American drug purchases will continue to be supported by a rapidly aging population, inflation, and the introduction of expensive new drugs. PEER GROUP: Pharmaceuticals Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) , , , BMY BRISTOL-MYERS SQUIBB CO , , , NVO NOVO NORDISK A/S , , , LLY LILLY (ELI) & CO , , , AZN ASTRAZENECA PLC , , , GSK GLAXOSMITHKLINE PLC ,670 NM 34, NVS NOVARTIS AG , , , PFE PFIZER INC , , , MRK MERCK & CO , , , SNY SANOFI , , , AGN ALLERGAN PLC ,024 NM 15, , The peer group comparison is based on Major Pharmaceuticals companies of comparable size. PAGE 2

3 Annual Dividend Rate COMPANY DESCRIPTION Johnson & Johnson, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices. The Consumer segment offers baby care products under the JOHNSON'S brand name; oral care products under the LISTERINE brand name; skin care products under the AVEENO, CLEAN & CLEAR, DABAO, JOHNSON'S Adult, LE PETITE MARSEILLAIS, LUBRIDERM, NEUTROGENA, and RoC brand names; women's health products, such as sanitary pads under the STAYFREE and CAREFREE, and o.b. tampon brand names; wound care products, including adhesive bandages under the BAND-AID brand name and first aid products under the NEOSPORIN brand name. This segment also provides over-the-counter medicines, including acetaminophen products under the TYLENOL brand name; cold, flu, and allergy products under the SUDAFED brand name; allergy products under the BENADRYL and ZYRTEC brand names; ibuprofen products under the MOTRIN IB brand name; and heartburn products under the PEPCID brand name. The Pharmaceutical segment provides various products in the areas of immunology, infectious diseases and vaccines, neuroscience, oncology, and cardiovascular and metabolic diseases. The Medical Devices segment offers orthopaedic products; general surgery, biosurgical, endomechanical, and energy products; electrophysiology products to treat cardiovascular disease; sterilization and disinfection products to reduce surgical infection; blood glucose monitoring and insulin delivery products; and disposable contact lenses. The company offers its products to general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals for prescription use, as well as for use in the professional fields by physicians, nurses, hospitals, eye care professionals, and clinics. Johnson & Johnson was founded in 1885 and is based in New Brunswick, New Jersey. One Johnson & Johnson Plaza New Brunswick, NJ USA Phone: Employees: STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 4.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 70% of the stocks we rate. Total Return 4.0 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 70% of the companies we cover. Efficiency 5.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility 4.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 80% of the stocks we monitor. Solvency 5.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 90% of the companies we analyze. Income 4.0 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 70% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3

4 Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial 1.64 Q3 FY E 2016(E) 7.12 E 2017(E) INCOME STATEMENT Net Sales ($mil) 18, , EBITDA ($mil) 6, , EBIT ($mil) 5, , Net Income ($mil) 3, , FINANCIAL ANALYSIS 's gross profit margin for the second quarter of its fiscal year 2016 is essentially unchanged when compared to the same period a year ago. Even though sales increased, the net income has decreased. is extremely liquid. Currently, the Quick Ratio is 2.54 which clearly shows the ability to cover any short-term cash needs. The company's liquidity has increased from the same period last year. At the same time, stockholders' equity ("net worth") has remained virtually unchanged only increasing by 1.88% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is very unlikely to face financial difficulties in the near future. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit BALANCE SHEET Cash & Equiv. ($mil) 42, , Total Assets ($mil) 139, , Total Debt ($mil) 26, , Equity ($mil) 72, , PROFITABILITY Gross Profit Margin 76.04% 74.88% EBITDA Margin 35.78% 32.64% Operating Margin 30.91% 27.64% Sales Turnover Return on Assets 10.74% 12.19% Return on Equity 20.73% 22.64% DEBT Current Ratio Debt/Capital Interest Expense Interest Coverage SHARE DATA Shares outstanding (mil) 2,738 2,769 Div / share EPS Book value / share Institutional Own % NA NA Avg Daily Volume 6,626,795 7,158,074 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4

5 RATINGS HISTORY Our rating for has not changed since 3/30/2012. As of 9/8/2016, the stock was trading at a price of which is 5.2% below its 52-week high of $ and 44.4% above its 52-week low of $ Year Chart BUY: $ $130 $120 $110 $100 MOST RECENT RATINGS CHANGES Date Price Action From To 9/8/14 $ No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 9/8/2016) 40.92% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months % Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss % Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY Research Contact: Sales Contact: VALUATION BUY. This stock's P/E ratio indicates a discount compared to an average of for the Pharmaceuticals industry and a discount compared to the S&P 500 average of To use another comparison, its price-to-book ratio of 4.51 indicates a significant premium versus the S&P 500 average of 2.83 and a significant discount versus the industry average of The price-to-sales ratio is well above the S&P 500 average, but well below the industry average. Upon assessment of these and other key valuation criteria, proves to trade at a discount to investment alternatives within the industry. Price/Earnings Peers Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a discount to its peers. Price/Projected Earnings Peers Premium. A higher price-to-projected earnings ratio than its peers can signify a more expensive stock or higher future growth expectations. is trading at a premium to its peers. Price/Book 4.51 Peers Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant discount to its peers. Price/Sales 4.61 Peers Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. DISCLAIMER: Price/CashFlow Peers Discount. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a discount to its peers. Price to Earnings/Growth 1.01 Peers 0.54 Premium. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant premium to its peers. Earnings Growth lower higher Peers Higher. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. is expected to have an earnings growth rate that significantly exceeds its peers. Sales Growth lower higher Peers 5.62 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at PAGE 5